Posted by **Keshia** on Saturday, April 5, 2008 at 9:35am.

Consider the production function Q = 20K 1/2 L 1/2. The firm operates in the short run with 100 units of capital.

a. The firm’s short-run production function is Q = __________.

c. The average product of labor function is AP = __________.

d. The marginal product of labor function is MP = _________. Show that the marginal diminishes for all levels of labor usage.

e. Assuming that the firm in question 2 is in the long run where its fixed endowment is $1000, wage rate is $10, and interest payment for capital is $5, what is the combination of capital-labor ratio that will maximize output? Show the graphical combination. Assume that the wage rate falls to $5, what is the new combination on the same graph?

f. What kind of returns to scale is depicted for each of the Cobb-Douglas production functions below? Explain. Q = K 1/4 L 1/4; Q = K 1/2 L 2/3

- Economics -
**economyst**, Monday, April 7, 2008 at 10:25am
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