.A company can sell its only product and in a perfectly competitive market at a priceof 15. To produce it, it must purchase two production inputs: labor (x1) and machinery (x2).Initially, the company only has 1 machine and it is not possible to change this in the short term.Inputs are purchased in competitive markets with respective prices (w1, w2) = (5,10). Theproduction function is as follows:32/3 1/3f(x,x2)a) Present the problem of maximization of the company.b) Find the first order condition that must be solved to find theoptimal level of supplies.c) Find the optimal input level x1 that the company must contract in theabove problem to maximize your profits. d) Without redoing your calculations, argue whether the optimal level of x1 in the short termwould have been higher or lower if the company had had 2 machines instead of 1.

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Answered: .A company can sell its only product…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The production function is given by Q=10L+2K. The wage for labor is $20 dollar per unit and price for capital is $5 per unit. The optimal bundle (L, K) to minimize cost is: (0, Q/2) (Q/20, Q/4) (Q/15, Q/3) (Q/10, 0)
A firm uses inputs L and K to produce output Q and the production function is Q = 5LK. The firm is currently using inputs L = 6 and K = 8. If the firm reduces its capital purchase to only 2 units, how much additional K must it purchase to keep output constant? Group of answer choices 12 14 16 18
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