Problem Set 9 - Solution

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

This preview shows pages 1–2. Sign up to view the full content.

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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

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).

Page1 / 9

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

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online