Consider the following Cobb-Douglas production function for the bus transportation system in a particular city: Q = aL B₁F B₂K B3 where L = labor input in worker hours, F = fuel input in gallons, K = capital input in number of buses, and Q = output measured in millions of bus miles. Suppose that the parameters (a, B₁, B2, and B3) of this model were estimated using annual data for the past 25 years. The following results were obtained: α = 0.0012; B₁ = 0.45; B₂ = 0.20; and 3 = 0.30. Determine the labor, fuel, and capital input production elasticities. Input Production Elasticities Labor Fuel Capital Suppose that labor input (worker hours) is increased by 2% next year (with the other inputs held constant). What is the approximate percentage change in output? % Suppose that capital input (number of buses) is decreased by 1% next year (when certain older buses are taken out of service). Assuming that the other inputs are held constant, what is the approximate percentage change in output? % returns to scale appear to characterize this bus transportation system. (Hint: Ignore the issue of statistical significance.)

Consider the following Cobb-Douglas production function for the bus transportation system in a particular city: Q = aL B₁F B₂K B3 where L = labor input in worker hours, F = fuel input in gallons, K = capital input in number of buses, and Q = output measured in millions of bus miles. Suppose that the parameters (a, B₁, B2, and B3) of this model were estimated using annual data for the past 25 years. The following results were obtained: α = 0.0012; B₁ = 0.45; B₂ = 0.20; and 3 = 0.30. Determine the labor, fuel, and capital input production elasticities. Input Production Elasticities Labor Fuel Capital Suppose that labor input (worker hours) is increased by 2% next year (with the other inputs held constant). What is the approximate percentage change in output? % Suppose that capital input (number of buses) is decreased by 1% next year (when certain older buses are taken out of service). Assuming that the other inputs are held constant, what is the approximate percentage change in output? % returns to scale appear to characterize this bus transportation system. (Hint: Ignore the issue of statistical significance.)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter7: Production Economics

Section: Chapter Questions

Problem 9E

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