Tutorial Topic 5 - Question One - Production Pt 1.pdf

# It can be demonstrated that the function exhibits

• Test Prep
• 5

This preview shows pages 4–5. Sign up to view the full content.

It can be demonstrated that the function exhibits decreasing returns for the remaining input combinations. b. The production function exhibits decreasing marginal product or capital or labor initially and then constant marginal productivity from thereafter. This can be seen by holding one input constant and increasing the other input. For example, hold capital constant at three units. The MP's of labor are 70, 15, and then 10, 10, 10. Next, hold labor constant at four units. The MP's of capital are 85, 10, and 10, 10, 10.

This preview has intentionally blurred sections. Sign up to view the full version.

SD&GY_2011-2012/2 5. a. Bridget's Brewery production function is given by ( ) , 2 , = y K L KL where K is the number of vats she uses and L is the number of labor hours. Does this production process exhibit increasing, constant or decreasing returns to scale? Holding the number of vats constant at 4, is the marginal product of labor increasing, constant or decreasing as more labor is used? Solution: Since ( ) ( ) ( ) ( ) 1.1 ,1.1 2 (1.1 ) 1.1 1.1 2 1.1 , , = = = y K L K L KL y K L we know the production process exhibits constant returns to scale. Holding the number of vats constant at 4 will still result in a downward sloping marginal product of labor curve. That is the marginal product of labor decreases as more labor is used. b. Michael's Dairy farm production function is given by ( ) 3 , 2 , = y K L K L where K is the number of machine milkers and L is the amount of labor hours he uses. Does this production function exhibit increasing, constant or decreasing returns to scale? Holding the number of
This is the end of the preview. Sign up to access the rest of the document.
• Three '14
• Microeconomics, Marginal product, Economics of production, Outboard motor, Ronald

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern