Analyzing Given Production Functions
Determine whether the following production functions exhibit constant, increasing, or decreasing returns to scale.
A. Q = 0.6L + 20K +10F
B. Q = 2L2 + 3LK + 5K2
C. Q = 20L0.25K0.70
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Solution Preview
A. Q = 0.6L + 20K +10F
Let L=100, K=100 and F=100 at initial point.
Q1=0.6*100+20*100+10*100=3060
Suppose all inputs are raised by 2%
i.e. L=102, K=102, F=102
Q2=0.6*102+20*102+10*102=3121.2
Percentage change in output=(Q2-Q1)/Q1=(3121.2-3060)/3060=2%
In this case, output has increased in the same proportion as that of inputs. We ...
Solution Summary
This solution depicts the required steps needed to check if the given functions exhibit increasing, decreasing or constant returns to scale. All work is clearly shown.
Analyze Cost and Role in Decision Making
Analyzing Cost and Its Role in Decision Making
The concept of opportunity cost and examination of how to calculate the cost of alternatives over single and multiple time periods. Analyze cost and its role in the decision-making process by answering the following questions:
? Citing examples, differentiate between opportunity cost, marginal cost, and relevant cost.
? Assess the relationship of marginal benefit and marginal costs. How is marginal benefit measured, and how does it relate to marginal costs?
? What other factors must managers address before making decisions? Why?