(a) For the cost function C(w₁, W2, y) 2y ww, calculate the Allen elasticity of substitution between the two inputs at the cost-minimizing input point (ri(w₁, W2, y), x(w₁, W2, y)). = (b) Consider the production function f(x, y, z) = √ry+xz+yz. Find the scale elasticity SE at (x, y, z) = (1, 2, 3), (5, 1, 6), (6, 6, 6) and determine if the pro- duction function is IRTS, CRTS, or DRTS locally at each point. (c) A profit maximizing firm in the market operates where the production exhibits decreasing return to scale (DRTS). Is this market in its long-run equilibrium? Justify your answer

(a) For the cost function C(w₁, W2, y) 2y ww, calculate the Allen elasticity of substitution between the two inputs at the cost-minimizing input point (ri(w₁, W2, y), x(w₁, W2, y)). = (b) Consider the production function f(x, y, z) = √ry+xz+yz. Find the scale elasticity SE at (x, y, z) = (1, 2, 3), (5, 1, 6), (6, 6, 6) and determine if the pro- duction function is IRTS, CRTS, or DRTS locally at each point. (c) A profit maximizing firm in the market operates where the production exhibits decreasing return to scale (DRTS). Is this market in its long-run equilibrium? Justify your answer

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Law of diminishing returns......
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