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Suppose a firm has the following production function: if L K where Y is the units of output; L is labor input; and K is
Suppose a firm has the following production function: if L K where Y is the units of output; L is labor input; and K is the capital stock, which is fixed in the short run. In words, firms use labor to produce output but its production level is constrained by its production capacity, which equals to the capital stock. Assume that the rental rate of capital is r = 1; the wage rate is w = 1; and the output price is p = 2. Initially, the firm has a capital stock K = 0.8. What is the profit maximizing output level for the firm in the short run
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