Problem #1yKLr wy$py = fA1/41/4ðA1/41/4 rK -wLa. Find the profit maximizing levels of K Lrw p 1. Consider two firms that produce a single output good, , using two inputs: Capital, , and labor, . the prices of each unit of capital and labor are and , respectively. The output good sells for per unit.Firm A's production function is (K,L) = K L. The profit function is thus:
(K,L) = K L-
and as functions of , , and.
b. Suppose that r = w = $1 and p = $4. What is the profit maximizing level of output, y ?
2. Consider an industry in the U.S. facing aggregate (inverse) demand function:
p(y) = 1050 - 5y
The industry is currently in long run equilibrium. The market price is $225 and there are n = 11 firms producing. Each firm's variable cost is:
cv(y) = y3
a. What is each firm's fixed cost?