Problem 5 The production function of COVID vaccines for firm O is given by Vo = √KL. and requires at least one unit of labor L and one unit of capital K, i.e. L≥1 und K≥ 1. a) After a year and some thorough research, the production function changes to V₂ = √AKL.
Problem 5 The production function of COVID vaccines for firm O is given by Vo = √KL. and requires at least one unit of labor L and one unit of capital K, i.e. L≥1 und K≥ 1. a) After a year and some thorough research, the production function changes to V₂ = √AKL.
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.10P
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Transcribed Image Text:Problem 5 The production function of COVID vaccines for firm O is given by
v° = VKL.
and requires at least one unit of labor L and one unit of capital K, i.e. L>1 und K > 1.
a) After a year and some thorough research, the production function changes to
VO = V4KL.
(I) Compute the marginal products with respect to labor L and capital K for both
production functions !
(II) Which company's the marginal products is/are larger ? What happened to the
original level of production after a year ?
(III) Do the production functions exhibit increasing, constant or decreasing returns to
scale ?
b) Suppose now, we compare production functions of company O that discovered the vaccine
to a second company M. The production function of M is given by
VM = K0.6 L0.4
(I) Compute the marginal products with respect to labor L and capital K for this pro-
duction function !
(II) If both companies used the same equal amount of labor L and capital K, which of
them will generate more output ?
(III) If the companies can only use more labor L than capital K, or, more K than L due
to limited resources, which of them has higher production capability ?
c) Suppose you have 10 firms with the production function V. What production function
describes the industry-level production of COVID vaccines ?
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