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Subject:EconomicsPrice: Bought3
1. Consider two firms that produce a single output good, yKLr wy$py = fA1/41/4ðA1/41/4 rK -wL
, using two inputs: Capital, , and labor, . the prices of each unit of capital and labor are and , respectively. The output good sells for per unit.
Firm A's production function is (K,L) = K L. The profit function is thus:
(K,L) = K L-
a. Find the profit maximizing levels of K and L as functions of r, w, and p.
b. Suppose that r = w = $1 and p = $4. What is the profit maximizing level of output, y ?
