Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 1 Consider the following production function: y = F(L, K) = 4LK - where L and K are the amount of labour and

 

Question 1 Consider the following production function: y = F(L, K) = 4LK - where L and K are the amount of labour and capital used in the production process, and y is the output. Throughout this question, the output price p is 3 and the rental rate of capital r is 1. We will first consider a firm in the short run, where the amount of capital is fixed at K = 64. The fixed cost is therefore 64 (a) (Level A) Is there diminishing returns to labour? Explain. (b) (Level A) Suppose the wage rate w is 1. Find the profit-maximising choice of L. Calculate the profit-maximising output level and the maximised profit. (There is no need to check the second order condition but of course you can check if you want to.) (c) (Level A) Now suppose w increases to 2. Find the profit-maximising choice of L. Calculate the profit-maximising output level and the maximised profit. (There is no need to check the second order condition.) You can leave your answers in square roots. (d) (Level A) What is the change in L when w increases from 1 to 2 in the short run? You can leave your answers in square roots.

Step by Step Solution

3.48 Rating (151 Votes )

There are 3 Steps involved in it

Step: 1

Ans 2 Solution The above statement is wrong because t... 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

Microeconomics An Intuitive Approach with Calculus

Authors: Thomas Nechyba

1st edition

538453257, 978-0538453257

More Books

Students also viewed these Accounting questions

Question

Are there professional development opportunities?

Answered: 1 week ago

Question

What has been your desire for leadership in CVS Health?

Answered: 1 week ago

Question

Question 5) Let n = N and Y Answered: 1 week ago

Answered: 1 week ago