question archive Suppose a firm produces a product with technology described by the production function Q = F(K, L), and sells this product at a price of P
Suppose a firm produces a product with technology described by the production function Q = F(K, L), and sells this product at a price of P
Subject:BusinessPrice: Bought3
Suppose a firm produces a product with technology described by the production function Q = F(K, L), and sells this product at a price of P. The firm pays w and r for reach unit of labor and capital respectively, and the firms objective is to maximize profit. F(K, L)=5L^.6K^.4
- Write the FOC condition for Profit Maximization.
- Now suppose that there is a change in the price of the product, P. How will this change in price affect the demand for labor and demand for capital? (Solve for dL*/dp, dk*/dp by taking the total differential of the FOC)
- Using your results in (b), find the effect of a change in the price on output supplied (find dL*/dp)
