Suppose that a firm uses L as an input, and its production function changes with L and a parameter a. Thus its profit is given by * = pf(L, a) – wL, where f is differentiable and increasing in a, and where p, w > 0. Using Envelope Theo- rem, find the derivative of the firm's maximal profit with respect to a and determine the sign of the derivative.

Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter7: Analytic Trigonometry
Section7.6: The Inverse Trigonometric Functions
Problem 91E
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3. Suppose that a firm uses L as an input, and its production function changes with L and
a parameter a. Thus its profit is given by
T = pf(L,a) – wL,
where f is differentiable and increasing in a, and where p,w > 0. Using Envelope Theo-
rem, find the derivative of the firm's maximal profit with respect to a and determine the
sign of the derivative.
Transcribed Image Text:3. Suppose that a firm uses L as an input, and its production function changes with L and a parameter a. Thus its profit is given by T = pf(L,a) – wL, where f is differentiable and increasing in a, and where p,w > 0. Using Envelope Theo- rem, find the derivative of the firm's maximal profit with respect to a and determine the sign of the derivative.
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