The following production function for a certain factory is given: 0.3 0.6 Y ˆ = 3K L where Y stands for the value of production (mln $), L stands for the number of employees (ths people) and K stands for the value of fixed assets (mln $).
economics
Description
The following production function for a certain factory is given: 0.3 0.6 Y ˆ = 3K L where Y stands for the value of production (mln $), L stands for the number of employees (ths people) and K stands for the value of fixed assets (mln $). For all the questions assume, that at the moment the number of employees is 20 000 people, whereas the value of fixed assets is 30 million $. a. Provide and interpret the production elasticity with respect to capital. b. Provide and interpret marginal productivity of capital in the given case. c. Suppose, that the factory is planning to get rid of the machine, whose value is 2 million USD. What should be the change of employment that will not change the expected value of production? d. What type of scale effects can be observed? Explain what it means.
