Problem Set 9 - Solution - Econ 313-1 TA: Tian Liang...

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Econ 313-1 TA: Tian Liang Solutions to Problem Set 9 1. ( L;K ) , i.e. ( L;K ) = pf ( L;K ) w L L w K K > 0 : If the input bundle is scaled up to become ( tL;tK ) , where t > 1 become ( tL;tK ) = pf ( tL;tK ) w L ( tL ) w K ( tK ) : Since the production function exhibits constant or increasing returns to scale, we have ( tL;tK ) > p [ tf ( L;K )] w L ( tL ) w K ( tK ) = t [ pf ( L;K ) w L L w K K ] = ( L;K ) : ( L;K ) > 0 implies that ( tL;tK ) ! 1 as t ! 1 . no longer acts as a price taker. Their output is so large that it a/ects market to enter the market. As they enter, the total output produced in the market will As they leave, the total output produced in that market will decrease. The price
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This note was uploaded on 06/27/2008 for the course ECON 3130 taught by Professor Masson during the Spring '06 term at Cornell University (Engineering School).

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Problem Set 9 - Solution - Econ 313-1 TA: Tian Liang...

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