Question

Problem 2: A firm has the following production function: f(x1,x2) = x1 + x2 A) Does this firm's technology exhibit constant, increasing, or decreasing returns to scale? B) Suppose the firm wants to produce exactly y units and that input 1 costs $w1 per unit and input 2 costs $w2 per unit. What are the firm's conditional input demand functions? C) Write down the formula for the firm's total cost function as a function of w1, W2, and y.

Answer 1

y = xit X2 flax, XX2) = axitit=df(x,x) Thus constant retwento scale exhibits exists 26 W, > We then x,=0 AX2=4 26 Wzyw, then X2 = 0 4x,=4 – way ý w, JW2 T = way i Wzywi c)