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Cobb-douglas production function for mauricio machines

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Reference no: EM132503668

PRODUCTION AND COSTS

1. Consider the following Cobb-Douglas production function for Mauricio's Machines:

Q = (L0.4) * (K0.7)

a. Intuitively, why are Cobb-Douglas production functions more appropriate representations of reality than, say, linear production functions?

b. Based on the function above, is Mauricio's business experiencing economies or diseconomies of scale? Explain how you arrived at your answer.

c. If Mauricio decided to boost Labor by 10% and Capital by 15%, how much will productivity increase?

d. If Mauricio wanted to boost productivity by 50% and already knew he was going to increase capital by 25%, how much would he have to increase his labor force to reach is production target?

Reference no: EM132503668

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