Question

Cuau produces tomatoes using labor and capital. The marginal products of both inputs are always strictly positive. When he uses more capital than labor, he keeps output constant if he adds 1 unit of labor for every 2 units of capital that he removes. When he uses more labor than capital, he keeps output constant if he adds 1 unit of labor for every 1=2 units of capital that he removes.

(a) Draw the isoquant that goes through the point (l; k) = (5; 5).

(b) True or false: Given the information we have, it is possible to conclude that Cuaus production function has constant returns to scale.

Answer 1

The question is saying that to remain output constant and using more capital ,it has to remove 1 labour for every two capital Increase.

And to remain output constant and using more labour ,it has to remove 2 capital for every labour Increase.

So both inputs are perfect substitues..so

Q=2L+K

Q=2*5+5=10+5=15

B) Q=2L+K

Doubling the scale,

Q(2L,2K)=2(2L)+(2K)=4L+2K=2(2L+K)

So doubling the scale leads to doubling the output so production exhibit constant return to scale