1. A profit maximizing firm operates in competitive input as well as output markets. The inputs are labor (L) and capital (K). The price of a unit of Labor is w while the price for a unit of capital is r. The output price is P. The production function of the firm is (, ) = (1 + ) + (1 + ) which means that L units of labor and K units of capital are needed to produce (, ) units of output. Determine the following: (a) The optimal quantities labor and capital. (b) The optimal output (c) The maximum profit (d) The comparative statics of the firm's maximum profit with respect to input prices and output price (e) The comparative statics of the firm's optimal input and output choices with respect to input prices and output prices (f) The equation for the firm's supply curve

2. Repeat Exercise 1. above with (, ) = + L