Managerial Economics: Applications, Strategy and Tactics 12th Edition by James McGuigan, Charles Moyer, Frederick Harris

Exercise 7

Suppose that a firm's production function is given by the following relationship:
Q = 2:5pffiLffiffiKffiffiffi ði:e:, Q = 2:5L:5K:5Þwhere Q = output
L = labor inputK = capital input
a. Determine the percentage increase in output if labor input is increased by 10 percent (assuming that capital input is held constant).
b. Determine the percentage increase in output if capital input is increased by 25 percent (assuming that labor input is held constant).
c. Determine the percentage increase in output if both labor and capital are increased by 20 percent.