Purchase Solution

# Production function: f(x1, x2) = [min{x1, 2x2 }]^2

Not what you're looking for?

1. Consider a firm that uses two inputs, the quantity used of input 1 is denoted as x1 and the quantity used of input 2 is denoted by x2. The firm produces and sells one good, using the production function: f(x1, x2) = [min{x1, 2x2 }]^2. The prices of each input are w1=\$2 and w2=\$3. The market for the product is competitive and output price is P=\$5.
a) Does the production function exhibit constant, increasing or decreasing returns to scale? Why?
b) Based on your answer to part (a), does the firm have a long-run profit maximizing plan?
c) What is the cheapest way to produce 36 units of output? How much is the cost in this case?
d) What is the firms profit if it manages to sell all 36 units product at the market price?

The question is also attached.

##### Solution Summary

This solution answers questions about the production function: f(x1, x2)=[min{x1, 2x2 }]^2. All calculations are shown in detail, and the results are illustrated with an Excel spreadsheet.

##### Solution Preview

a) The production function is a squared function, meaning that if you double all the inputs, the output will increase by a factor of 4. That means that the function exhibits increasing returns to scale.
b) The firm's long-run ...

##### Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

##### Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

##### Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

##### Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

##### Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.