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Intermediate Macroeconomics
Tutorial 1 – Production Technology
1.
(a) What is meant by a homogeneous production function, expressed in
general functional form?
(b) How is the homogeneity of the production function related to returns
to scale?
(c) Suppose that you have a CobbDouglas production function of the
following form:
Q = 0.25K
0.24
L
0.40
D
0.10
where
Q
is output,
K
is capital stock,
L
is labour, and
D
is land.
What is the interpretation of the individual exponents on
K
,
L
and
D
respectively?
(d) What is the interpretation of the sum of these coefficients (i.e.,
which represents the degree of homogeneity for this function)? Is this
function subject to constant, decreasing or increasing returns to scale?
Explain your reasoning.
2.
(a) Determine whether each of the following production functions has
constant, increasing, or decreasing returns to scale:
(i)
=
+
2 15
( , )
F K L
K L
(ii)
=
( , )
F K L
KL
(iii)
=
+
2
15
( , )
F K L
K
L
(b) How can you (graphically) represent returns to scale (
IRS, CRS, DRS
)
using isoquants?
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3.
If a 10% increase in both capital and labour causes output to increase by less
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 Spring '10
 MacoEconomics2
 Economics, Macroeconomics, National Income, real wage, Production Technology

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