ECO244: Applied Mathematics 2 Summer 2010 PRACTICE PROBLEMS T pic: Basic attributes of production functions C urse I!struct r: "##!

!$ %1& Supp se ' u c !sider the ( ll )i!* Li!earl' h m *e! us C ++,- u*las pr ducti ! (u!cti !:
Q = AK L1 & Pr .e the Euler/s the rem&

%2& E0plai! the +asic ( ur pr perties ( li!earl' h m *e! us C ++,- u*las pr ducti ! (u!cti !& %1& Supp se ' u c !sider the ( ll )i!* CES pr ducti ! (u!cti !:
Q = A[K + (1 ) L ]
1

& Pr .e the Euler/s the rem&

%2& E0plai! the +asic (eatures ( CES pr ducti ! (u!cti !& %3& C mme!t )hether the ( ll )i!* pr ducti ! (u!cti !s are h m *e! us a!d c mme!t ! their retur!s t scale& a& Q = x 0.3 y 0.4 +& Q = x 3 + 2 xy + y 3 c& Q = 7 KL2

%4& C !sider the ( ll )i!* *e!eral C ++,- u*las pr ducti ! (u!cti !:

Q = AK L & -em !strate that this pr ducti ! (u!cti ! e0hi+its a& C !sta!t retur!s t scale )he! + = 1 +& -ecreasi!* retur!s t scale )he! + 51 c& I!creasi!* retur!s t scale )he! + 61

%7& 8 r the C ++,- u*las pr ducti ! (u!cti !9 is the rati

( la+ ur/s share t capital/s

K share depe!de!t ! the rati : - es the same a!s)er appl' t the CES (u!cti !: L