Describe economic significance of lagrangean multiplier, Ask an Expert

Economics

Q1) The own price elasticity of demand for pack of cigarettes is estimated to be -.4. Present price and consumption are $4.00 and 2 million units per year. Suppose a linear demand relationship find out the demand equation for cigarettes. Show all your calculations.

Production function for firm is given by

Q = L+K+LK where Q denotes output; Land K labor and capital inputs. Wage rate and rental rate are given by w and r respectively.

(a) Illustrate whether or not above production function exhibits diminishing marginal productivity of labor.

(b) Find out nature of the Return to Scale as exhibited by above production function

(c) Using Lagrangean Multiplier method, compute least cost combinations of labor and capital and resulting long run total cost function for above production function. Describe economic significance of Lagrangean Multiplier and find out its value.

(d) Using Excel- Solver verify your answer to (d) above.

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M922796

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