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Suppose a firm has the following widget production function: q=2K/₁2, the wage rate, w = $20 and the rental rate on capital is $180. Assume widgets are produced in a perfectly competitive market. (hint: it is a Cobb-Douglas production function) In the short run, let K = 25 and assume the price of widgets is $75. What is the firm's short run cost function and supply function? How many widgets should the firm produce? What is their profit or loss? Currently, how would they want to adjust their K and L if they could make an adjustment? How do you know? Assume market demand is the following: P = 120 -0.01Q. If all firms have identical production and cost functions, in the short run with p = $75, how many firms are there? What do you expect to see happen in this industry in the long run? Now assume the firms merge into one monopolist in the long run. What quantity and price will the firm set to maximize profit in the long run?

Suppose a firm has the following widget production function: q=2K/₁2, the wage rate, w = $20 and the rental rate on capital is $180. Assume widgets are produced in a perfectly competitive market. (hint: it is a Cobb-Douglas production function) In the short run, let K = 25 and assume the price of widgets is $75. What is the firm's short run cost function and supply function? How many widgets should the firm produce? What is their profit or loss? Currently, how would they want to adjust their K and L if they could make an adjustment? How do you know? Assume market demand is the following: P = 120 -0.01Q. If all firms have identical production and cost functions, in the short run with p = $75, how many firms are there? What do you expect to see happen in this industry in the long run? Now assume the firms merge into one monopolist in the long run. What quantity and price will the firm set to maximize profit in the long run?

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.9P
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3 1=2K²/12 1²/2 the wage Suppose a firm has the following widget production function: q=2K/2 rate, w = $20 and the rental rate on capital is $180. Assume widgets are produced in a perfectly competitive market. (hint: it is a Cobb-Douglas production function) a. In the short run, let K = 25 and assume the price of widgets is $75. What is the firm's short run cost function and supply function? How many widgets should the firm produce? What is their profit or loss? Currently, how would they want to adjust their K and L if they could make an adjustment? How do you know? b. Assume market demand is the following: P = 120 -0.01Q. If all firms have identical production and cost functions, in the short run with p = $75, how many firms are there? What do you expect to see happen in this industry in the long run? C. Now assume the firms merge into one monopolist in the long run. What quantity and price will the firm set to maximize profit in the long run?
Transcribed Image Text:3 1=2K²/12 1²/2 the wage Suppose a firm has the following widget production function: q=2K/2 rate, w = $20 and the rental rate on capital is $180. Assume widgets are produced in a perfectly competitive market. (hint: it is a Cobb-Douglas production function) a. In the short run, let K = 25 and assume the price of widgets is $75. What is the firm's short run cost function and supply function? How many widgets should the firm produce? What is their profit or loss? Currently, how would they want to adjust their K and L if they could make an adjustment? How do you know? b. Assume market demand is the following: P = 120 -0.01Q. If all firms have identical production and cost functions, in the short run with p = $75, how many firms are there? What do you expect to see happen in this industry in the long run? C. Now assume the firms merge into one monopolist in the long run. What quantity and price will the firm set to maximize profit in the long run?
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