A firm has monthly production function Q (L, K) = L +( ?1+K), where L is worker hours per month and K is square feet of manufacturing space. The marginal rate of technical substitution is |MRTS|= 2 (?1+K)
(a) Does the firm’s technology satisfy the Productive Inputs Principle?
(b) Graph the firms isoquant where Q = 100. Does the firms technology have a declining MRTS?
(c) Does the firm have increasing, decreasing, or constant returns to scale?
(d) If the hourly wage is $50 and manufacturing space costs $25 per square foot per month, what is the firms least-cost input combination for producing 100 units?
(e) Graph its output expansion path. (f) Write the equation of its long run cost function C(Q).