Suppose the production function for T-shirts can be represented as q = L0.25 K0.75. Show that the production function has constant returns to scale
What will be an ideal response?
When L = L1 and K = K1, q = q1. Let L2 = ?L1 and K2 = ?K1 so that both L and K have increased by the same proportion. Then, q2 = ?L10.25 ?K10.75 = ?0.25+0.75 L10.25 K10.75 = ?q1. Thus for any ?, output changes by the same proportion that the inputs changed.
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Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else constant, how would this affect the market for Blu-ray players (a complement to LCD televisions)?
A) The demand for Blu-ray players would increase and the equilibrium price of Blu-ray players would decrease. B) The demand for Blu-ray players would decrease because consumers could afford to buy fewer LCD televisions and Blu-ray players. C) The demand for Blu-ray players would increase and the equilibrium price of Blu-ray players would increase. D) The supply of Blu-ray players would increase and the equilibrium price of Blu-ray players would decrease.
"Even if there is a liquidity trap or interest-insensitive investment, a falling price level will increase the real money supply and real wealth, and this impacts consumption"
This is a statement a __________ economist might make as an explanation of why the economy __________ pull itself out of a recession. A) Classical; will B) Classical; may not be able to C) Keynesian; will D) Keynesian; may not be able to