Economics 360: Microeconomic Theory

Spring, 2014. Assigned Mar 27. Due Thurs Apr 3 in lecture.

Problem Set #4

5. Consider this production function: f(K,L) = min( 2K^.5, 3L^.5 )

a. What are the returns to scale of this production function? Explain.

b. What is the optimal ratio of capital to labor, as a function of input prices r and w? What other type of production function is this one most similar to?Explain.

6. Consider this production function: f(K,L) = 10 K^.4 L^.4

a. What are the returns to scale of this production function?

b. What are the optimal quantities of K and L, as a function of input prices r, w, and the output price p?

c. What is the cost function which corresponds to this production function, when r=1 and w=2?