ProbSet-5-2010 - Department of Agricultural and Resource...

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Department of Agricultural and Resource Economics University of California, Davis ARE 100A Problem Set V Winter 2010 Richard Howitt Production & Cost Functions Quiz on February 19 th Given that a firm has a production function: 0.3 0.7 4 QK L = (a) Numerically evaluate the Elasticity of Substitution for the interval between the two isoquant points K = 15, L = 10, and K = 8, L = 15.2. Use the average of MRTS and K/L to divide the changes in MRTS and K/L. (b ) For the case where K = 8, L = 12, calculate the output level, then increase the quantity of each input by 50%. Recalculate the output level and comment on the Returns to Scale
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