Answer to Question #180986 in Microeconomics for Christian Takyi Mensah

Question

Consider a competitive firm with the following profit function

P = R - C = PQ - WL - rK; where P = Price of the output Q = Output L =

Labor input K = Capital input w = wage rate for labor input r = rental rate for

1 1

capital input and Q(K,L) = 16K713

Find the input quantities K and L that satisfy the first order conditions for the profit maximization. Assume the parameter values are P = 4, w = 1, and r= 1. (b)

Compute the profit maximizing output Q.

Compute the maximum profit P.

If the wage rate w changes to w = 2, determine the new L.

(e) If the rental rate r changes to r = 2, determine the new L.

(f) If the output price P changes to P = 16, determine the new L.

Answer 1

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