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?

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

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