Let F (L, K): = 1, PK = Max {L, 2K} be a firm's production function. Let P₁ = 6, and the total budget be 600,000 dollars. How much labor

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.14P
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Let F (L,K) = Max {L, 2K} be a firm's production function. Let P₁
1, PK = 6, and the total budget be 600,000 dollars. How much labor
and capital should this firm optimally hire to maximize its profit? Does
this production function satisfy the law of diminishing returns? What
about decreasing returns to scale? Explain. Calculate the firm's demand
functions for both labor and capital.
Transcribed Image Text:= Let F (L,K) = Max {L, 2K} be a firm's production function. Let P₁ 1, PK = 6, and the total budget be 600,000 dollars. How much labor and capital should this firm optimally hire to maximize its profit? Does this production function satisfy the law of diminishing returns? What about decreasing returns to scale? Explain. Calculate the firm's demand functions for both labor and capital.
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