Answer to Question #111495 in Economics of Enterprise for adaner

Question

A firm has a production function: Q=95K^{0.3}L^{0.2}R^{0.25}
Prices for the purchase of the respective K, L and R inputs are $ 30, $ 16 and $ 12 per unit. If the selling price of the product is $ 4 per unit, which is the maximum profit of the firm.(use hessian matrix)

Answer 1

The profit is maximized if its derivative equals zero, so:

TP = P×Q - TC = 4Q - (16L + 30K + 12×R), where P is price, Q is quantity, TC is total cost.

TP'(Q) = 0.