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A competitive firm produces its output, y, according to the production function: y = F(K,L), where Kand Lare capital and labour inputs. The price of
A competitive firm produces its output, y, according to the production function: y =
F(K,L), where Kand Lare capital and labour inputs. The price of output is p and the
prices of Kand Lare wand s, respectively. Assume that Kis fixed in the short run.
In addition, assume that the production function exhibits constant returns to scale in K
and L. Define the firm's short run profit function and show that the firm's short run
supply function is linear in K.
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