Question

In the​ short-run, a firm cannot vary its​ capital, Kequals​4, but can vary its​ labor, L. It produces output q. Explain why the firm will or will not experience diminishing marginal returns to labor in the​ short-run if its production function is A) q=10L + K and B) q= L^0.5 K^0.5

Answer 1

Step-by-step explanation:

a) given that the capital is fixed at k=2 and the production function is shown as

q = 10L + K

Then the firm will not experience any diminishing returns to labour this is because when the firm varies the labour input, keeping capital fixed at K=2 , the marginal product of labour ( MPL) is constant at 10.

b) with the production function , q= L^0.5 K^0.5, with the increase in labour input the firm will experience diminishing marginal returns to labour in the short run.

q= L^0.5 K^0.5= L^0.5(2)∧0.5

=1.41L∧0.5

Thus MPl = 0.705L∧-0.5

That is the increase in L, the MPl diminishes