Assume that the firms operation is subject to the following production function and price data: Q =
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Assume that the firm’s operation is subject to the following production function and price data:
Q = 3X + 5Y - XY Px = $3;Py = $6 where X and Y are two variable input factors employed in the production of Q.
a. In the unconstrained case, what levels of X and Y will maximize Q?
b. It is possible to express the cost function associated with the use of X and Y in the production of Q as TC = 3X + 6Y. Assume that the firm has an operating budget of $250. Use the Lagrange multiplier technique to determine the optimal levels of X and Y.What is the firm’s total output at these levels of input usage?
c. What will happen to the firm’s output from a marginal increase in the operating budget?
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