Labor and capital are substitutes in production

Assignment Help Business Economics

Reference no: EM13869328

A price taking firm chooses its inputs to maximize short-run profits. Its Cobb-Douglass production function has the following form: q(L, K) = L^(1/2) K ^(1/3). The output price is 1,000 per unit and the cost of each unit of input is 10. In the short-run, capital is fixed at 27 units.

(a) Set up the profit function in terms of labor only.

(b) Find the optimal choice of labor, L ∗.

Another price taking firm chooses its inputs to maximize long-run profits. Labor and capital are substitutes in production and both exhibit decreasing returns to scale, q(L, K) = L^(1/2) + K^(1/2). The output price is 100 and the price of each of the inputs is 10.

(a) Set up the firm’s profit function and provide the two conditions for profit maximization.

(b) Find the profit maximizing levels of capital and labor.

Reference no: EM13869328

Questions Cloud

Two-person game- the dollar remains on the table : There is a dollar on the table, which each player can try to grab. If only one player grabs, G, and the other does not, D, the player who grabs gets the dollar and his payoff is 1, while the other player's payoff is 0.

What is value of perfect information about state of your leg : You're a sprinter, and in practice today you fell and hurt your leg. An x-ray suggests that it's broken with probability 0.2. Your problem is whether you should participate in next week's tournament. What is the value of perfect information about the..

Consistent with the nash equilibria of the game : Consider the following game: There are 3 players. Each player decides whether to work on a common project or not. The project is successful only if 2 or more players work on it. When the project is successful, each player who works on the project obt..

Find the current exchange rates online : Find the current exchange rates online and post the current exchange between the U.S. dollar and any other currency. Briefly describe what has happened over the past year between the two.

Labor and capital are substitutes in production : A price taking firm chooses its inputs to maximize short-run profits. Its Cobb-Douglass production function has the following form: q(L, K) = L^(1/2) K ^(1/3). Set up the profit function in terms of labor only. Another price taking firm chooses its i..

What is the cournot equilibrium : Two identical firms compete in competition (Cournot competition) in the same market where the inverse demand is P(Q) = 100 − Q. The constant marginal cost of both firms is 10. Find the best response function for each firm. What is the Cournot (simult..

Statements mandated by federal and state law : What does the interpretation of the law in this case suggest to businesspersons who sell products labeled with statements mandated by federal and state law?

Bankers acceptance differ from an ordinary check : How does a bankers acceptance differ from an ordinary check? Rank the following instruments from most liquid to least >1$bill, share of ibm stock, municipal bond issued in alaska, treasury bill.

At the peak of the financial crisis : At the peak of the financial crisis, you had lost 40% of your stock holdings, leaving you with stocks with $10,000. You asked your family for advice on what to do with your money. If you decided to follow your mother’s advice, what is the opportunity..

User Account

All Pages