We have worked a lot with homothetic production technologies.Suppose instead that a production process that uses capital and labor is quasilinear in capital and that capital is fixed in the short run.Then, assuming the firm currently profit maximizes at a given wage and rental rate, the short and long run slices of the production frontier are identical.

Question

Quizplus · Accepted Answer

If capital is fixed in the short run, then the firm cannot adjust its capital usage to changes in the rental rate. Therefore, the short run production function is fixed in terms of capital usage and is only affected by the changes in labor usage. As a result, the short run slice of the production frontier is identical to the long run slice, which also assumes capital can be adjusted. Therefore, the statement is true.

We Have Worked a Lot with Homothetic Production Technologies