Assignment Task
Task
1. State whether you agree or disagree with the following statements. Give reasons in support of your answers.
a. A competitive firm will shut down its operations in the short run if it earns losses.
b. The expansion path for a Leontiff production function is linear.
c. If a production function has constant elasticity of substitution (CES), its positive monotonic transformation will also have CES.
d. A production function that exhibits diminishing marginal returns to inputs, necessarily has decreasing returns to scale also
2. Consider a production function, for a firm. Answer the
following:
a. What returns to scale does the production function exhibit? Is the function homothetic?
b. Show that the long run optimal input choice for cost minimization will depend only on the ratio of the two inputs and not on absolute levels.
c. What’s the elasticity of substitution for the production function?
d. Show that the production function is concave in the two inputs.
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