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The production function of a company is Q=0.9P+0.06t with Q being the number of products produced per year and t being the number of labor hours per year.
1. Explain why you believe or do not believe that the above production function includes all the relevant inputs.
2. Explain why you believe or do not believe that the production function is reasonable if it is applied to all possible values to t.
3. Does the production function exhibit diminishing returns.

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#### Solution Preview

1. This production function does not include all the relevant inputs.

The production function is in the form Q(P,t) = 0.9P+0.06t where P is one input and t is another input (t is labour hours that is given, p is not given by questions, so let us assume that p is raw material input).

Typically, no production can occur with just two inputs (i.e. you cannot produce anything ready-to-sell with just labour and raw materials, you probably need machinery, packaging, land, factor plants etc. as well, and all these are counted as relevant inputs).

There is one exception, however, that makes the above production function includes all the relevant inputs. If we assume that p is all other inputs (i.e. p ...

#### Solution Summary

The solution explains questions regarding the production function given.

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