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Marge's Hair Salon production function is y(K, L) = where K is the number of hair dryers and L is ...

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Marge's Hair Salon production function is y(K, L) = where K is the number of hair dryers and L is ...

Marge's Hair Salon production function is y(K, L) = where K is the number of hair dryers and L is the number of labor hours she employs. Does this production function exhibit increasing, decreasing, or constant returns to scale? At the moment, Marge uses 16 labor hours and 16 hair dryers. Suppose that Marge can use any amount of either input without affecting the market costs of the inputs. If Marge increased her use of labor hours and hair dryers by 10%, how much would her production increase? Increasing the use of both inputs by 10% will result in Marge's costs increasing by exactly 10%. If Marge increases her use of all inputs by 10%, what will increase more, her production or her costs? Given that Marge earns $12.50 for each unit produced, do her profits go up or down when she increases her input use by 10%?

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Microeconomics

Edition: 8^th

Author: Pindyck

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