Suppose a firm produces a single output with technology, q = √(x1 + x2) where q is output, and x1 and x2 are the inputs. The costs per unit of inputs are w1 and w2. a) Derive the conditional input demand functions for the firm. b) What is the cost function for the firm and what type of returns to scale is it? c) What are the firm’s output supply and profit functions? Note: it pays to use the cost function you derived in b) to answer this given the nature of the production technology.
Suppose a firm produces a single output with technology, q = √(x1 + x2) where q is output, and x1 and x2 are the inputs. The costs per unit of inputs are w1 and w2. a) Derive the conditional input demand functions for the firm. b) What is the cost function for the firm and what type of returns to scale is it? c) What are the firm’s output supply and profit functions? Note: it pays to use the cost function you derived in b) to answer this given the nature of the production technology.
Chapter10: Cost Functions
Section: Chapter Questions
Problem 10.7P
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Question
Suppose a firm produces a single output with technology,
q = √(x1 + x2)
where q is output, and x1 and x2 are the inputs. The costs per unit of inputs are w1 and w2.
a) Derive the conditional input demand functions for the firm.
b) What is the cost function for the firm and what type of returns to scale is it?
c) What are the firm’s output supply and profit functions? Note: it pays to use the cost function you derived in b) to answer this given the nature of the production technology.
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