Problem Set 4 - Problem Set Four, ECON 6090 Due: October...

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Problem Set Four, ECON 6090 Due: October 21st, 2010 1. Some propositions on returns to scale (a) Prove constant returns to scale implies decreasing and increasing re- Y is not decreasing returns to scale. returns to scale are compatible. y 1 ; y 2 ; and y 3 as inputs to produce y 4 and y 5 according to y 4 = y 1 y ± 2 y 5 = y 1 y ² 3 where &; ±; ² > 0 What happens if + ± ± 1 or + ² ± 1? y assuming + ± < 1 and + ² < 1 Compute the average cost of good 4 or 5 at optima purchase their own supplies of y 1 . For any given vector p , compare If we interpret y 1 as being a "spillover" between the production processes, what would be a fair method for assessing whether the
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Problem Set 4 - Problem Set Four, ECON 6090 Due: October...

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