Suppose that the production function has the form ?=?∙√?+? where y is output, A is a positive constant, ? is labor input, and B is another constant which may be positive, negative or zero.
a) Graph the level of output, ?, versus the quantity of
labor input, ?.
b) Is the marginal product of labor positive? Is it diminishing in
??
c) Describe the wealth and substitution effects from an increase in
the coefficient ?.
d) Describe the wealth and substitution effects from an increase in
the coefficient ?.
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