Problem 5 The production function of COVID vaccines for firm O is given by Vo = √KL. and requires at least one unit of labor L and one unit of capital K, i.e. L≥1 und K≥ 1. a) After a year and some thorough research, the production function changes to V₂ = √AKL.
Problem 5 The production function of COVID vaccines for firm O is given by Vo = √KL. and requires at least one unit of labor L and one unit of capital K, i.e. L≥1 und K≥ 1. a) After a year and some thorough research, the production function changes to V₂ = √AKL.
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.9P
Related questions
Question
Transcribed Image Text:Problem 5 The production function of COVID vaccines for firm O is given by
v° = VKL.
and requires at least one unit of labor L and one unit of capital K, i.e. L>1 und K > 1.
a) After a year and some thorough research, the production function changes to
VO = V4KL.
(I) Compute the marginal products with respect to labor L and capital K for both
production functions !
(II) Which company's the marginal products is/are larger ? What happened to the
original level of production after a year ?
(III) Do the production functions exhibit increasing, constant or decreasing returns to
scale ?
b) Suppose now, we compare production functions of company O that discovered the vaccine
to a second company M. The production function of M is given by
VM = K0.6 L0.4
(I) Compute the marginal products with respect to labor L and capital K for this pro-
duction function !
(II) If both companies used the same equal amount of labor L and capital K, which of
them will generate more output ?
(III) If the companies can only use more labor L than capital K, or, more K than L due
to limited resources, which of them has higher production capability ?
c) Suppose you have 10 firms with the production function V. What production function
describes the industry-level production of COVID vaccines ?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you