There are two firms with different production functions: q1=min(2L,K) and q2=KL0.5 . Input prices: w=2 and r=4.

a. Consider each of the firms separately and find the optimal K/L ratio for each one.

b. Just for this part of the question let us assume that each firm hires the same number of workers: X=L1=L2,. Find K, the production, and the total cost for each firm (in terms of X).

c. If we focus on firm 1, what is its marginal cost (should be a function of q1 only)?

d. Suppose that the final product market is perfectly competitive at the moment. As the firm 2 owner, whose only desire is for firm 1 to leave the market, how would you feel about the market price (P) of 3? What about P=5? Explain.

Reminder: the min function picks the smallest number in the brackets: min(A,B)=A if AB.

There is all conditions!!!