7. On short notice, Walter creates blue ice according to the following production function: Q(E,K)=10E/2. The wage of an assistant such as Jesse is $100 per hour and the price of each unit of blue ice is $2000. The capital costs $10 per unit per hour total. a. Find the profit function. b. How many hours will Walter employ Jesse, if he is maximizing profits.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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a and b

7. On short notice, Walter creates blue ice according to the following production function:
Q(E,K)=10E/2. The wage of an assistant such as Jesse is $100 per hour and the price
of each unit of blue ice is $2000. The capital costs $10 per unit per hour total.
a. Find the profit function.
b. How many hours will Walter employ Jesse, if he is maximizing profits.
c. Now consider the long run in which Walter can choose how much capital to employ
according to the production function: QE,K)=(K4)(E!?). Find the optimal mix of
capital and labor to use in the long run.
d. Find the optimal amount of employment and capital in the long run using the optimal
mix of capital and labor from part c. Hint: Write out the new profit function with the
new production function and the cost of capital now being 10 x K.
Transcribed Image Text:7. On short notice, Walter creates blue ice according to the following production function: Q(E,K)=10E/2. The wage of an assistant such as Jesse is $100 per hour and the price of each unit of blue ice is $2000. The capital costs $10 per unit per hour total. a. Find the profit function. b. How many hours will Walter employ Jesse, if he is maximizing profits. c. Now consider the long run in which Walter can choose how much capital to employ according to the production function: QE,K)=(K4)(E!?). Find the optimal mix of capital and labor to use in the long run. d. Find the optimal amount of employment and capital in the long run using the optimal mix of capital and labor from part c. Hint: Write out the new profit function with the new production function and the cost of capital now being 10 x K.
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