A competitive firm produces its output, y according to the production function: y = F(K, L), where K and L are capital and labour inputs. Let the prices of output K and L be given by p, w, and s, respectively. Assume that K is fixed in the short run. In addition, assume that the production function exhibits constant returns to scale in K and L. Show that the firm’s short-run supply function is linear in L.

A competitive firm produces its output, y according to the production function: y = F(K, L), where K and L are capital and labour inputs. Let the prices of output K and L be given by p, w, and s, respectively. Assume that K is fixed in the short run. In addition, assume that the production function exhibits constant returns to scale in K and L. Show that the firm’s short-run supply function is linear in L.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.3P

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