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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
2. Q=10L0.5 K0.5, 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).
- In the short-run, capital is fixed at 20 units. Determine the profit-maximizing L in the short run.
- For the level of Q you found in a), find K, L you recommend using in the long run.
- Determine whether returns to scale are increasing, constant, or decreasing.
- Do you predict the number of firms in this industry will increase, decrease, or remain constant? Explain, referring to your spreadsheet as appropriate.
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