Question

Question 1 1 pts Use Table1 from the Excel sheet labeled Exercise2Table.xlsx to answer the following questions: 1. Does the data suggest that the two inputs are Perfect Complements? Explain. 2. Does the data suggest that the two inputs are Perfect Substitutes? Explain. 3. Does the data suggest that the production function is Cobb-Douglas? Explain. 4. What type of returns to scale do you observe? Explain. 5. Complete Table 2"

Answer 1

a) No. This is because when capital is fixed for 1 unit, and labor is increased from 4 to 36 units, output is increased. If these were perfect complements, increasing one of them would not have raised output

b) No. This is because when labor is 0 or when labor is not used, production is 0 which indicates that both labor and capital are required for production

c) Yes. This is because output is increased when one of the inputs are increased. Also, the production function requires the use of both the inputs, giving a convex shaped isoquant

d) When K = 1 and L = 4, Q is 1. When K = 2 and L = 8, Q is 2. Since doubling the inputs results in doubling the output, there are constant returns.

e) APL is Q/L and MPL is difference in Q divided by difference in L

K	L	Q	APL	MPL
4	0	1.00
4	1	1.56	1.56	0.56
4	2	1.83	0.92	0.27
4	3	2.05	0.68	0.22
4	4	2.25	0.56	0.20
4	5	2.43	0.49	0.18
4	6	2.60	0.43	0.17
4	7	2.76	0.39	0.16