Herongate Horses Produces Saddles (Y)using Two Inputs, Leather (Z₁)and Labour

Essay

Herongate Horses produces saddles (y)using two inputs, leather (z₁)and labour (z₂). Herongate Horses' production function is given by: F(z₁, z₂)= (1/4)z₁z₂
i)Does Herongate Horses' production function exhibit constant, increasing, or decreasing returns to scale?
ii)Graph Herongate Horses' isoquant for y = 4. Calculate the slope of the isoquant as a function of z₁ and z₂.
iii)Calculate Herongate Horses' conditional input demands for z1 and z2 as a function of y, when w₁ = 5 and
w₂ = 20.
iv)Using your answer to (iii), find Herongate Horses' total cost function. Graph the total cost function, TC(y). Find and graph the long run average cost function, LAC(y).