Answer to Question #158571 in Microeconomics for ved

Question

Given the production function f (x1; x2) = X1^a1 X₂ ^a2

, calculate

the profit maximizing demand and supply functions, and the profit function.

Assume ai > 0. What restrictions must a1 and a2 satisfy?

Answer 1

The profit maximizing demand is a downward-sloping line and supply function is a upward-sloping part of marginal cost (MC) function, which is a derivative of total cost function. The profit function is the difference between total revenue and total cost.

a1 and a2 must satisfy such restrictions that 0 < a1 < 1, 0 < a2 < 1, a1 + a2 = 1.