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

It can be demonstrated that the function exhibits

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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.
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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
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  • Three '14
  • Microeconomics, Marginal product, Economics of production, Outboard motor, Ronald

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