ECO204_2008_Test_2_solutions

Show your calculations below answer explanation a

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Unformatted text preview: e when the output with twice the inputs is greater than double the initial output. Double the initial output is: Double Initial q = 2 min(L, K) + 2 New output > Double initial output when: 2 min(L, K) + > 2 min(L, K) + 2 Which can only happen if < 0. If you're having problems seeing this, you can use this technique from HW 5: 2 min(L, K) + > 2 min(L, K) + 2 6 ECO 204, 2008-2009, Test 2 Solutions This test is copyright material and may not be used for commercial purposes without prior permission 2 min(L, K) + + > 2 min(L, K) + 2 2 min(L, K) + 2 > 2 min(L, K) + 2 > 0 < 0 Thus: q = min(L, K) + has increasing returns to scale when < 0. 7 ECO 204, 2008-2009, Test 2 Solutions This test is copyright material and may not be used for commercial purposes without prior permission Question 5 (30 points) The Colgate Company manufactures toothbrushes using labor and capital as inputs in a complements technology q = min(K, L). Every 1m toothbrushes requires 1 capital and 1 labor. Each unit of Colgate's capital (K) consists of: 1 Tufter machine which inserts the brush into the handle 1 Handle Mold machine which produces the handle 1 Packaging machine which packages the toothbrush These machines are specifically designe...
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This note was uploaded on 05/02/2011 for the course ECO 204 taught by Professor Hussein during the Fall '08 term at University of Toronto- Toronto.

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