3. A firm has a cost function of the form: C(2₁. 22. q) = w25 25 25 25 ² where Z₁...2 are factor inputs, ...., w are factor wages, q is the firm's output, a is a positive constant, a > 0. (a) What are the conditional factor demands? Is the production function homothetic? (b) Set up the firm's maximization problem given the wages w and the price of the final output p. (c) Solve the firm's profit maximization problem. Indicate for what values of a this problem leads to a finite and unique profit-maximizing output (use second order conditions). Relate this problem to the returns to scale.

3. A firm has a cost function of the form: C(2₁. 22. q) = w25 25 25 25 ² where Z₁...2 are factor inputs, ...., w are factor wages, q is the firm's output, a is a positive constant, a > 0. (a) What are the conditional factor demands? Is the production function homothetic? (b) Set up the firm's maximization problem given the wages w and the price of the final output p. (c) Solve the firm's profit maximization problem. Indicate for what values of a this problem leads to a finite and unique profit-maximizing output (use second order conditions). Relate this problem to the returns to scale.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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