Problem #1 Consider two firms that produce a single output good, y, using two inputs: Capital, K, and labor, L. the prices of each unit of capital and labor are r and w, The output good y sells for $p per unit.Firm A’s production function is y = fA(K,L) = K1/4 L1/4. The profit function is thus:ðA(K,L) = K1/4 L1/4 – rK -wL Find the profit maximizing levels of K and L as functions of r, w, and p.Suppose that r = w = $1 and p = $4. What is the profit maximizing level of output, y ?

Profits are calculated as the excess of total revenue over the total cost. The profit equation of…

Answered: Consider two firms that produce a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Problem #1

Consider two firms that produce a single output good, y, using two inputs: Capital, K, and labor, L. the prices of each unit of capital and labor are r and w, The output good y sells for $p per unit.

Firm A’s production function is y = f_A(K,L) = K^1/4 L^1/4. The profit function is thus:

ð_A(K,L) = K^1/4 L^1/4– rK -wL

Find the profit maximizing levels of K and L as functions of r, w, and p.
Suppose that r = w = $1 and p = $4. What is the profit maximizing level of output, y ?

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