Consider a production function of the form
f(x1,x2) = x1α + x2α
with 0 < α.
1. For which values of α will this exhibit constant, increasing and decreasing Returns to Scale?
2. What is the TRS (Technical Rate of Substitution)?
3. What is the Elasticity of Substitution?
Now consider the CES (Constant Elasticity of Substitution) production function
g(x1,x2) = (x1α + x2α)1/α
4. What is the Return to Scale for the production function g?
5. What is the TRS and the Elasticity of Substitution for the CES production?