What are the production elasticities of demand, Macroeconomics

The following Cobb-Douglas production function is used to describe the output generated by a local government maintenance agency.

Q = αLβ1Kβ2Eβ3

Where L represents number of worker hours, K represents number of trucks used, and E represents energy used.  Statistical estimated generated the following values for α, β1, β2, and β3.

Α = 0.01;  β1 = 0.5, β2 = 0.4, and β3 = 0.2

a.  What are the production elasticities of demand for labor, capital (trucks) and energy?

b.  If worker hours (labor) are increased by 10% next year, how much will output (Q) increase?

c.  If the number of trucks (K) decreases by 10% next year, how much will output (Q) decrease?

d. What type of returns to scale is consistent with the above production function?

 

Posted Date: 4/1/2013 5:31:21 AM | Location : United States







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