tut7memo - TUTORIAL 7 1. Explain the difference between...

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Unformatted text preview: TUTORIAL 7 1. Explain the difference between diminishing returns and decreasing returns to scale. Diminishing returns is a short-run phenomenon. It applies to additions of variable inputs holding at least one input constant. Decreasing returns is a long-run phenomenon and applies when all inputs are varied. There is thus no relationship between diminishing returns to production and decreasing returns to scale. 2. A daily production function for yo-yo's is Q = 12L 1/2 + 8K 1/2 . Show all your work for the following questions. a. What are the marginal product equations for each input? b. How many yo-yo's are produced when labour is 9 and capital is 16? c. What is the slope of the isoquant at the point of production in answer b above? d. If the inputs are quadrupled, are there economies or diseconomies of scale? e. If the production function in (a) is a short-run function with capital fixed at 16, were there diminishing returns to labour when the 9th worker was hired? a) Δ Q/ Δ L = 6L-1/2 and Δ Q/ Δ K = 4K-1/2 b) 68 c) The MRTS, which is the slope of the isoquant, which is also the ratio of the marginal products of the inputs, is 2. 2....
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tut7memo - TUTORIAL 7 1. Explain the difference between...

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