cost minimzation

timer Asked: Oct 24th, 2015

Question description

A firm may produce output using two technologies A and B. q(k,L)=min(2K,L) and q(K,L)=min(K,2L).

(a). Show that both technologies have constant returns to scale.

(b) Say that technology is relatively labor intensive if it uses more labor to produce the same amount of output than the other technology. Which technology A or B is labor intensive?

(c).Using the same diagram draw isoquants of both technologies corresponding to output level q=10

(d) Consider a firm which has only one plant. The manager can choose freely whether he uses technology A or B, but he can operate only one technology. Which technology should be used if the manager has more k than l and which technology should be used if there is more l than k? ( Think which technology will lead to higher output given the same level of factors?). Explain that the firm's production function can be weitten as q*(K,L)=max(qa(K,L),qb(K,L))

(e). Using answer to the previous questions, you may now draw isoquants for the firm's production function.

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