Question

A textile company has the production function Q = min{0.25K, 0.5L}, where K is units of...

A textile company has the production function Q = min{0.25K, 0.5L}, where K is units of capital and L is hours of labor.
      a.      Without any warning, the price of capital doubles. What should this textile company do in response?
      b.      If this textile company were planning a new plant, would there be any advantages to a larger facility?

0 0
Add a comment Improve this question Transcribed image text
Answer #1

A)Since the production function is Leontief production function, any increase in price of capital will not change the demand of any input because there is zero substitution effect

B) No because these textile company represent constant return to scale. Thus any increase in plant size or adding a new plant will not work

Add a comment
Know the answer?
Add Answer to:
A textile company has the production function Q = min{0.25K, 0.5L}, where K is units of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT