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Consider a firm which purchases inputs x= (x1, x2, x3) in competitive markets at prices w = (w1, w2, w3) . This firm’s production function is y = x1, x2, x3).
a. Is this firm facing: constant, increasing, decreasing, or indeterminate returns to scale? Explain
b. Derive the conditional factor demand equation for input x2 .
c. If in the time period considered the amount of input x3 if fixed at x3, then is the cost function c(w,y) homogeneous in w?
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