2. Consider a firm that has won a contract to produce 200 units of output. Given that the firm's revenue from this contract is fixed (it is determined by the contract), the firm wants to fulfill the contract as cheaply as possible to maximize their profits. In other words, the firm now wants to minimize its costs of producing 200 units. The price per unit of capital is $10, the price per unit of labor is $20, and the firm's production function is given by q = 5K1/²L1/2 where q is output, K is capital used, and L is labor used. a. Solve for the cost-minimizing combination of labor and capital where the firm is able to produce 200 units and fulfill the contract. b. What is the lowest cost possible to fulfill the contract? What would be increased cost if the firm wanted to produce 201 units instead? (Hint, use the Lagrange multiplier, 2. C.
2. Consider a firm that has won a contract to produce 200 units of output. Given that the firm's revenue from this contract is fixed (it is determined by the contract), the firm wants to fulfill the contract as cheaply as possible to maximize their profits. In other words, the firm now wants to minimize its costs of producing 200 units. The price per unit of capital is $10, the price per unit of labor is $20, and the firm's production function is given by q = 5K1/²L1/2 where q is output, K is capital used, and L is labor used. a. Solve for the cost-minimizing combination of labor and capital where the firm is able to produce 200 units and fulfill the contract. b. What is the lowest cost possible to fulfill the contract? What would be increased cost if the firm wanted to produce 201 units instead? (Hint, use the Lagrange multiplier, 2. C.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter13: Firms In Competitive Markets
Section: Chapter Questions
Problem 11PA: Suppose that each firm in a competitive industry has the following costs: Total cost: TC = 50 + q2...
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