Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3. (35 points) A firm has a production function given by f($1, 12) = ]1;, where I] and I2 are the two inputs used to

image text in transcribedimage text in transcribed
3. (35 points) A firm has a production function given by f($1, 12) = ]1;, where I] and I2 are the two inputs used to produce output y. Let the price the firm pays per unit of input 1 be wi, and the price the firm pays per unit of input 2 be w2. The firm is planning to produce y units of output.Short-run profit-maximization: In the short-run, the firm uses a2 units of input 2 and is unable to vary this quantity. In the short-run, the only thing that is left for the firm to choose is the amount of input 1. Let the price of the firm's output be p, and, once again, let the price the firm pays per unit of input 1 be wi, and the price the firm pays per unit of input 2 be w2. (c) Derive the firm's short-run demand function for input 1 and its short-run supply function. (d) Explain what happens to the short-run profit-maximizing production plan as the output price p decreases. Present graphically the short-run demand function for input 1 and show on the graph what happens to the quantity demanded when p decreases. (e) Given than w1 = w2 = $1, p = $9 and 12 = 27, find the firm's optimal level for input 1 and its optimal short-run output level. Calculate the firm's maximum short-run profit level

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Marketing

Authors: Philip R Cateora

14th Edition

0073380989, 9780073380988

More Books

Students also viewed these Economics questions

Question

=+ Identify the ethical dilemma in this scenario.

Answered: 1 week ago

Question

Shellsort is a stable sort True False

Answered: 1 week ago