=+13.7*†

Business Application: Switching Technologies: Suppose that a firm has two different homothetic, decreasing returns to scale technologies it could use, but one of these is patented and requires recurring license payments F to the owner of the patent. In this exercise, assume that all inputs, including the choice of which technology is used, are viewed from a long-run perspective.

A. Suppose further that both technologies take capital k and labor , as inputs but that the patented technology is more capital intensive.