A monopoly has a Cobb Douglas production function per hour Q (K, L) = K^1/3 L^1/3. The cost of capital (rent) is $27 per hour
A monopoly has a Cobb Douglas production function per hour Q (K, L) = K^1/3 L^1/3. The cost of capital (rent) is $27 per hour and the cost of labor (wage) is $8 per hour. Moreover, this firm has a budget of $432 per hour.
Write down the Lagrangian function for the purpose of maximizing the production for the monopoly.
What are the critical values of K and L?
Verify, by using the second order conditions, that your critical values are indeed maximum.
What is the maximized production for the monopoly?
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Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
3rd edition
978-0077971304, 77971302, 978-0073530680, 73530689, 978-0071221160, 71221166, 978-0077905200
