1.Arm has a Cobb-Douglas production function of Q = K 0 . 25 L 0 . 75 . (a)Does this production technology exhibit increasing, constant, or

1.   A rm has a Cobb-Douglas production function of Q = K0.25L0.75.

(a)    Does this production technology exhibit increasing, constant, or decreasing returns to scale?

(b)    Suppose that the rental rate of capital is r = 1, the wage rate is w = 1, and the rm wants to produce Q = 3. In the long-run, what combination of L and K should they use?

(c)    Suppose now that the wage rate increases to w = 6. In the long run, what is the new combination of L and K that would be cost-minimizing if the rm wishes to continue producing Q = 3?

 
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