ECON 7701 EXAM #2
Dr. Richard Stahl Fall 2016
Name: ANSWER KEY
Please read all questions carefully and write your answers in your Blue Book. Please clearly number your
answers and start a new answer on a fresh page. For all numerical questions, you must show ALL WORK to
receive credit. Each question starts on a new page. GOOD LUCK!
Please turn the page to start the exam.
(Please do NOT write below this line.)
Question # Points
1. _____________ out of 10
2. _____________ out of 30
3. _____________ out of 30
4. _____________ out of 30
TOTAL POINTS: _______________ out of 100
ADJUSTMENT: _______________
TOTAL SCORE: _______________
1. (10 points) Suppose a firm has the following production function:
( )
1
aa
b
q LK= +
. For what values of a
and b will the production function exhibit increasing, decreasing or constant returns to scale? What is the
marginal rate of technical substitution?
ANSWER:
Let q = f(L,K). Then:
( ) ( ) ( )
( )
( )
1
2 ,2 2 2 2 ,
a
aa
bb
f L K L K f LK=+=
For a > b, increasing returns to scale.
For a < b, decreasing returns to scale.
