The Ascot Corporation which produces stationery hires a cons

The Ascot Corporation, which produces stationery, 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 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 returns?

PS, can you give me a more explicit answer instead of just a simply yes or no? Thanks.

Solution

a) The production function suggsted by the consultant Q = 0.9P + 0.06L is incorrect because it is important to note that a production function is never linear , for a linear function implies that i) one can produce any quantity of a good with just 1 input which is not usually possible

b) The production function is not reasonable if it is applied to all possible values of L because the various inputs are not perfect substitutes in production . It is not possible to produce stationary with just labor or paper. Both paper and labor inputs are necessary for the production stationary . Therefore the production function cannot be applied to all possible values of L .

C) The production function is inconsistent with the law of diminishing marginal returns. The usual functional forms specified for a production function are (i) double log or linear in log ( called the Cobb- Douglas production function) ii) quadratic etc.