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Ricardo produces widgets, using as inputs labor (L) and machines (K). His production function is given...

Ricardo produces widgets, using as inputs labor (L) and machines (K). His production function is given by the following equation: y = 10K2/3 + L1/2 .

(a) What type of returns to scale (increasing/constant/decreasing) does Ricardos production function exhibit? Explain.

At the end of last year, Ricardo bought his only machine for $1,000. He will use this machine for 5 years, after which the machine will have no value. Ricardo will calculate depreciation linearly (depreciation will be 20% of the initial value of the machine per year). This machine has no other use besides Ricardos production of widgets, and, at this moment, Ricardo cannot buy any more machines.

(b) What is Ricardos annual fixed cost of production? Is the fixed cost sunk or not? Explain.

(c) What is Ricardos demand for labor as a function of the quantity he wants to produce annually?

(d) Assuming that wage equals 1, what is Ricardos annual total cost function?

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