Question

(a) Define homotheticity of a single-output production technology.

(b) Prove that homotheticity is equivalent to expansions paths being linear rays (ie: technological rates of substitution being homogeneous of degree zero.)

(c) Let f(x₁,x₂) be a homothetic function. Show that its technical rate of substitution at (x₁,x₂) equals its technical rate of substitution at (tx₁,tx₂)

Answer 1