(2) Now suppose that the firm has the Leontief production function with , > 0. (

Question

(2) Now suppose that the firm has the Leontief production function with , > 0. (a) Does this production function exhibit increasing return to scale (IRS)? DRS? CRS? Date: January 17, 2018. (b) (When answering the following questions, notice that the Leontief function is not differentiable at certain points.) Solve the firm's cost-minimization problem for some arbitrary wi,2, y0 and derive the conditional demand functions. Justify your answer carefully (c) What is the firm's cost function? (d) What is the firm's marginal cost function? (e) What is n? How do you relate your answer to Shephard's lemma? (0) What is lan (au)

Explanation / Answer

F(x1, x2) = min( x1, x2)

So, F(tx1, tx2) = min(t x1, tx2)

                       = t min( x1, x2)

It exhibits constant returns to scale.

   X1*(w1, w2, y) = y/

X2*(w1, w2, y) = y/

                                                                  = w1* y/ + w2* y/

                                                                  = y (w1 / + w2 /)

C(w1, w2, y)/ w1 = y/

C(w1, w2, y)/ w2 = y/

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