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A farmer uses robots R and labor L to produce strawberries Y . To produce strawberries, the farmer needs to combine inputs in a way
A farmer uses robots R and labor L to produce strawberries Y . To produce strawberries, the farmer needs to combine inputs in a way described by the following production function: f(R, L) = min{2L, R}. The rental rate of a robot is denoted by r = $5, the hourly wage is w = $10, and the price of a kilogram of strawberries is p = $10. The farmer operates in a perfectly competitive market.
- Find the value of the quantity tax on robots that maximizes the fiscal revenue raised by the government.
- What happens to the profit maximizing production plan in the long run? Explain.
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