2. Q=10L^0.5 K^0.5, where Q is the output of Chianti (a popular wine sold by Raffaldini's Vineyard and Winery, located in the Yadkin Valley of North Carolina), L is labor and K is capital.

w=$80, r=$20

where w is the wage rate and r is the cost of capital.

Output price is $10 and is constant (competitive industry). Input prices are also constant (competitive input markets).

a) In the short-run, capital is fixed at 20 units. Determine the profit-maximizing L in the short run.

b) For the level of Q you found in a), find K, L you recommend using in the long run.

c) Determine whether returns to scale are increasing, constant, or decreasing.

d) Do you predict the number of firms in this industry will increase, decrease, or remain constant? Explain, referring to your spreadsheet as appropriate.