Question

A firm discovers that when it uses K units of capital and L units of labor, it is able to produce X= L^1/4*K^3/4 units of output 1. Continue to assume that capital and labor can each be hired at $1 per unit. Show that in the long run, if the firm produces 24 units of output, it will employ 16 units of capital and 81 units of labor. What is the long-run total cost to produce 12 units of output? (8 points) 2. Does this production function exhibit constant, increasing, or decreasing return to scale?

Answer #1

The given production function exhibits constant returns to scale

if the production function is and , the constant returns are exhibited

the given production function is X= L^1/4*K^3/4 , and 1/4 + 3/4 = 1

Hence the production function exhibits constant returns

then

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