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The Ascot Corporation, which produces stationery, hires a consultant to estimate its production function. The consultant concludes that Q = 0.9P + 0.06L where Q is the number of pounds of stationery produced by Ascot per year, L is the number of hours of labor per year, and P is the number of pounds of paper used per year.
a. Does this production function seem to include all the relevant inputs? Explain.
b. Does this production function seem reasonable if it is applied to all possible values of L? Explain.
c. Does this production function exhibit diminishing marginal returns?
The long-run and short-run aggregate supply curves reflect fundamental differences between long-run and short-run macroeconomic analysis.
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