Essay
A producer has a production function given by: y(l1,l2)= l10.5+2l20.5 where y is the level of output and l1 and l2
are two different types of labour that are employed. Their cost is w1 and w2 respectively.
a)Suppose that the input prices are both equal to w and that the output sells at price p. What is the optimal employment of two types of labour as a function of p and w?
b)Suppose that p=10, w=5. What is the optimal quantity of output produced? What is the corresponding profit?
c)What returns to scale does the production function exhibit?
Correct Answer:
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a)l1=0.25(p/w)2; l2=0.2...View Answer
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