Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please, show me the steps for solving this quiestion: Two firms in a grimy Ohio town produce the same product in a competitive industry. Each

Please, show me the steps for solving this quiestion:

Two firms in a grimy Ohio town produce the same product in a competitive industry. Each has an old factory using an old technology. It still pays to operate these factories but it would not pay to expand them. The only variable factor used by either firm is labor. Each firm pollutes the other and thus reduces the output of the other firm. The production functions of firms A and B respectively are Qa = La0.5 (2/3) Qb and Qb = Lb0.5 (1/3) Qa, where La0.5 and Lb0.5 are the square roots respectively of the amount of labor used by firms A and B. The wage rate of labor is $1 and the price of the firms output is $12.

a. If the two firms each maximize profits independently, what is their total output and how much quasi- rents do their factories earn?

b. If someone buys them both and maximizes joint profits, how much quasi- rent is earned in total?

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

Essentials Of Applied Econometrics

Authors: Aaron D Smith, J Edward Taylor

1st Edition

0520288335, 9780520288331

More Books

Students also viewed these Economics questions

Question

3. Identify cultural universals in nonverbal communication.

Answered: 1 week ago