1. Consider the following production function: . Does this production function exhibit constant returns to scale? (Hint: Replace K and L by 2K and 2L, respectively, and check if F(2K, 2L) = 2F(K, L).) 2. Consider the following production function: . a. Calculate the marginal product of labour. b. Calculate the marginal product of capital. c. Does this production function exhibit diminish MPL and MPK? d. Does this function exhibit constant returns to scale? 3. Suppose represents the production function of both Mexico and Spain. Use the following information to answer the next questions. L = Population K = Capital Y = Output Country (millions) (trillion) Mexico 105 0.18 45 0.74 (trillion) 1.0 Spain 1.7 a. Calculate total factor productivity for both countries using the PF in question 2. b. Calculate per capita income for both countries. c. Explain the difference in per capita income. 4. A snack food factory in the Tuas area of Singapore employs 100 workers and 20 machines. Currently the marginal product of labor is $6 and that of capital is $15. Assuming that the market prices for labor and capital are $3 and $25 respectively; answer the following: a. Is the firm maximizing its profits? b. Should the firm change its use of labor and capital? If yes, how? 5. Consider the production function of olive oil in Spain. Suppose unusually adverse weather conditions (e.g. hail storms) resulted in lower than expected production. a. Draw the original and the new production function in the same graph. b. What is the effect on the marginal product of capital?
1. Consider the following production function: . Does this production function exhibit constant returns to scale? (Hint: Replace K and L by 2K and 2L, respectively, and check if F(2K, 2L) = 2F(K, L).) 2. Consider the following production function: . a. Calculate the marginal product of labour. b. Calculate the marginal product of capital. c. Does this production function exhibit diminish MPL and MPK? d. Does this function exhibit constant returns to scale? 3. Suppose represents the production function of both Mexico and Spain. Use the following information to answer the next questions. L = Population K = Capital Y = Output Country (millions) (trillion) Mexico 105 0.18 45 0.74 (trillion) 1.0 Spain 1.7 a. Calculate total factor productivity for both countries using the PF in question 2. b. Calculate per capita income for both countries. c. Explain the difference in per capita income. 4. A snack food factory in the Tuas area of Singapore employs 100 workers and 20 machines. Currently the marginal product of labor is $6 and that of capital is $15. Assuming that the market prices for labor and capital are $3 and $25 respectively; answer the following: a. Is the firm maximizing its profits? b. Should the firm change its use of labor and capital? If yes, how? 5. Consider the production function of olive oil in Spain. Suppose unusually adverse weather conditions (e.g. hail storms) resulted in lower than expected production. a. Draw the original and the new production function in the same graph. b. What is the effect on the marginal product of capital?
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.9P
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