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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 '10
 AARON
 Economics, Microeconomics, Monotonic function, cost minimization problem

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