1. A firm production function is q = KL + L, where q is output, K is hours of capital services and L is hours of labor. a. Does this production function exhibit increasing, constant, or decreasing return to scale? b. The firm operates so as to minimize its costs and faces a wage of w =$1 per hour of work and a rental rate of capital of v = $2. If it uses 10 units of L, how many units of K does it use? c. How many units of output does it produce?
1. A firm production function is q = KL + L, where q is output, K is hours of capital services and L is hours of labor. a. Does this production function exhibit increasing, constant, or decreasing return to scale? b. The firm operates so as to minimize its costs and faces a wage of w =$1 per hour of work and a rental rate of capital of v = $2. If it uses 10 units of L, how many units of K does it use? c. How many units of output does it produce?
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.9P
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Transcribed Image Text:1. A firm production function is q = KL + L, where q is output, K is hours of capital services and L is hours of
labor.
a. Does this production function exhibit increasing, constant, or decreasing return to scale?
b. The firm operates so as to minimize its costs and faces a wage of w =$1 per hour of work and a rental
rate of capital of v =$2. If it uses 10 units of L, how many units of K does it use?
C. How many units of output does it produce?
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