Please answer in detail according to the picture.Show that the cost function is homogeneous of degree 1/(α+β) in output. How do the returns to scale (degree of homogeneity of the production function) relate to the propertiesof the cost function? Does this make sense to you? Explain clearly why. Consider a firm that has a Cobb-Douglas technology. The firm wishes to minimize the cost of producing yunits of output and has access to perfectly competitive factor markets. The firm's cost minimization problemis given by:min wl +rk{k,l}s.t. k°18= YLet μ denote the Lagrange multiplier on the output constraint.

Cost Function Homogeneity: The cost function, C(y, w, r), for a Cobb-Douglas production function is…

Consider a firm that has a Cobb-Douglas technology. The firm wishes to minimize the cost of producing y units of output and has access to perfectly competitive factor markets. The firm's cost minimization problem is given by: min wl +rk {k,l} s.t. k°18 = Y Let μ denote the Lagrange multiplier on the output constraint.

Consider a firm that has a Cobb-Douglas technology. The firm wishes to minimize the cost of producing y units of output and has access to perfectly competitive factor markets. The firm's cost minimization problem is given by: min wl +rk {k,l} s.t. k°18 = Y Let μ denote the Lagrange multiplier on the output constraint.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter9: Production Functions

Section: Chapter Questions

Problem 9.5P

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