Answer to Question #219696 in Microeconomics for Romeo

Question

1.   We assume a firms production is determined on two inputs, capital(K) and labour(L).

(a)    Explain the following terms using a diagram.

i.        A Cobb-Douglas production function

ii.      Isoquants and Isocosts

iii.   The long-run equilibrium

(b)   Suppose that a firms out put is given by:

q = αLK²                                                                                       

Answer 1

1a)

I)

Cobb-Douglas production function is a model showing links between production input and output (factors). The aspect is utilized in calculating input ratios to each other for effective productivity as well as estimate technological adjustments in methods of production.

ii)

iii)

If the economic profit equals 0 for a perfectly competitive industry within the market, typical industry in the perfect competition tends to gain 0 normal profit within long run equilibrium since new companies may join the market competing for above economic profit, hence driving normal profit towards zero.