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1. Consider the following Cobb-Douglas production function for Red Bean Coffee: Q = (L^0.2) * (K^0.5)
a. Intuitively, why are Cobb-Douglas production functions more appropriate representations of reality than, say linear production functions?
b. Based on the function above, is Red Bean Coffee's business experiencing economies or diseconomies of scale? Explain how you arrived at your answer.
c. If Red Bean Coffee decided to boost Labor by 15% and Capital by 10% how much will productivity increase?
d. If Red Bean Coffee wanted to boost productivity by 40% and already knew they were going to increase capital by 20%, how much would they have to increase their labor force to reach this production target?
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