The Ascot Corporation, which produces stationary, hires a consultant to estimate
ID: 1189575 • Letter: T
Question
The Ascot Corporation, which produces stationary, hires a consultant to estimate its production function. The consultant concludes that Q = 0.9P + 0.06L where Q is the number of pounds of stationary produced by Ascot per year, L is the number of pounds of stationery produced by Ascot per year, L is the number of hours of labor per year, and P is the number of pounds of paper used per year.
a. Does this production function seem to include all the relevant inputs? Explain. b. Does this production function seem reasonable if it is applied to all possible values of L? Explain. c. Does this production function exhibit diminishing marginal revenue?
Explanation / Answer
a)
No.
Many important inputs, like capital and technology have not been taken into account
b)
Yes. As it is an increasing function of L. More the labor, more the stationary produced.
c)
No.
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