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  3. a rm has the following production function:y = l1/

A rm has the following production function:y = L1/3K1/2 (a) Does this production function exhibit increasing, decreasing, or...

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Economics

A rm has the following production function:y =L1/3K1/2

(a) Does this production function exhibit increasing,decreasing, or constant returns to scale? Prove.

(b) Suppose in the short run, capital is xed at K = 100.Assuming that the output and factor prices are p, w; and rrespectively, find firm's factor demand for labor. What will theeffects be when w, r and p increase? Explain your resultsintuitively.

(c) Now, suppose the government decides to impose a payroll taxof $t per worker employed. What will the effect be on L*? Why?

(d) Alternatively, if the government decides to impose a lum-sumtax of $T, what will the e¤ect be on L*? Why?

Answer & Explanation Solved by verified expert
4.4 Ratings (912 Votes)
A rm has the following production function y L13K12 a Does this production function exhibit increasing decreasing or constant returns to scale Prove The sun of expinents is 13 12 23 6 56 0833 0833 1 Therefore the production function has decreasing returns to scale b Suppose in the short run    See Answer
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