Problem: Consider the following production function f(K, L) = 2K + 3L. Suppose w is the wage paid for each unit of labor, and r is the capital return.
a) What kind of returns to scale has this production function?
b) Solve the cost minimization problem when w = 1 and r = 3.
c) What if now w = 3 and r = 1? Solve it.
d) Draw a picture with both cases. Explain the situation in your picture.
e) Calculate the cost function. f) What type of scale economies does it have?