A firm with the production function f(x) = x₁x₂ wants to produce 100 units of output. a. How much of each input should the firm use if each unit of input costs $1? b. How much of each input should the firm use if w₁ = $1 and w₂ = $4? C. How much of each input will the firm need if it wants to produce 225 units of output and the price of each input is $1? d. Can you tell what kind of returns to scale this production function has from the input demands for each quantity of output?
A firm with the production function f(x) = x₁x₂ wants to produce 100 units of output. a. How much of each input should the firm use if each unit of input costs $1? b. How much of each input should the firm use if w₁ = $1 and w₂ = $4? C. How much of each input will the firm need if it wants to produce 225 units of output and the price of each input is $1? d. Can you tell what kind of returns to scale this production function has from the input demands for each quantity of output?
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter7: Production, Inputs, And Cost: Building Blocks For Supply Analysis
Section: Chapter Questions
Problem 1DQ
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Step 1: Describe the importance of returns to scale
VIEWStep 2: Figure out how much of each input should the firm use if each unit of input costs $1
VIEWStep 3: Figure out how much of each input should the firm use considering the new values
VIEWStep 4: Figure out how much of each input should the firm use if it wants to produce 225 units
VIEWStep 5: Figure out the returns to scale
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