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Suppose a firms production function is: q = L 0.5+K0.5. Assume that the price of labor is w = 1 and the price of capital is r = 1. Determine the firms cost function and its marginal cost. Now suppose that wage rises to w = 2. Determine again firms cost function and its marginal cost. Does this production function have increasing, decreasing, or constant returns to scale, and is it homogeneous.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91229175

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