1) Consider the Production functions

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1) Consider the Production functions. Indicate whether these functions are decreasing

returns to scale, constant returns to scale or increasing returns to scale.

a) 2K + L

b) K²/L³

c) K^0.3L^0.7

 

2) What are some factors that cause an increase in investment in a small closed economy?

How does this affect trade surplus/deficit? Explain in words and show graphically.