A monopoly has a Cobb Douglas production function per hour Q (K, L) = K^1/3 L^1/3. The
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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?
Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
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