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Distinguish between short-run production function

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Q.1 The generalized demand function for good A is Qd = 600 - 4PA -0.03M -12PB +15T +6Pe +1.5N Where, Qd = Quantity demanded of good A each month, PA= price of good A, M =Average household income, PB= Price of related good B, T= a consumer taste index ranging in value from 0 to 10, Pe = price consumers expect to pay next month for good A, and N= number of buyers in the market for good A.

a. Interpret the intercept parameter in the generalized demand function?

b. What is the value of slope parameter for the price of good A? Does it have the correct algebraic sign?

c. Interpret the slope parameter of income. Is good A normal or inferior? Why?

d. Are goods A and B substitutes or Compliments? Explain.

e. Are the algebraic signs on the slope parameters for T, Pe and N correct?

Q.2 Distinguish between short-run production function and long-run production function. The law of diminishing returns is sometimes known as the law of variable proportions. How? Explain the law with example and figure.

 

Reference no: EM132618019

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