Answer Happy

1. A firm discovers that when it uses K units of capital and L units of labor it is able to 31 produce q = 5K+L+units of output. a) Calculate the MPL, MPK and MRTS. [3 Marks] 31 b) Does the production function q = 5K Z exhibit constant, increasing or decreasing returns to scale and why? [2 marks]

c) Suppose that capital costs $1 per unit and labor can each be hired at $3 per unit and the firm uses 10 units of capital in the short run and the production 31 function is q = 5K+L+ as before. What is the short-run total cost (SRTC) to produce 200 units of output? [5 Marks] d) Continue to assume that capital and labor can each be hired at $1 per unit for capital and $3 for labor. In the long run if the firm produces 200 units of 31 output and the production function is q = 5K+L as before. Show that the long-run cost to produce 200 units of output is lower than the short run cost you calculated in part (c). [8 Marks]