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Consider a firm that produces output using a Cobb Douglas combination of capital and labour: Y = K L 1 , 0 < < 1
Consider a firm that produces output using a Cobb Douglas combination of capital and labour:Y=KL1 , 0<<1
Suppose that the firm's price is fixed in the short run; thus, it takes both the price of its product, P,
and the quantity, Y, as given. Input markets are competitive; thus, the firm takes the wage, W, and the rental
price of capital, rk as given.
What is the first-order condition for the profit-maximizing choice of K. Is the second-order condition
satisfied?
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