Suppose firms A and B each make T-shirts. Firm A’s production function

Suppose firms A and B each make T-shirts. Firm A’s production function is q = L0.5K0.5. Firm B’s production function is q = 1.2 ˆ— L0.5K0.5. If the two firms each hire the same amounts of capital and labor, compare the two firms in terms of APL and MPL.

What will be an ideal response?

ANSWER

Firm B’s APL and MPL will equal 1.2 times the APL and MPL of firm A.