Suppose the production of DVD players can be represented by the following production function: q = L^0.4K^0.4. The firm currently produces q1 units. If all inputs doubled, the new level of output will equal A)2^0.4 ∗ q1. B)2^0.8 ∗ q1. C)0.8 ∗ q1. D)1.6 ∗ q1.

Question

Quizplus · Accepted Answer

Doubling all inputs means L→2L,S1→2S1,U1→2U1,P0→2P0, and K→2K. Substituting these new values into the production function and simplifying, we get q = 2^1.8*q1. Therefore, the new level of output will be 2^1.8 times q1, which is approximately equal to 2.828 times q1. The option closest to this value is B, 2^0.8*q1.

Suppose the Production of DVD Players Can Be Represented by the Following