A competitive firm produces its output, y according to the production function: Y = F(K,L), where K and L are capital and labour inputs. The output price is p, and the prices of K and L are s and w, respectively. Assume that K is fixed in the short run. In addition, assume that the production function exhibits constant returns to scale in K and L. Define the firm's short-run profit function and show that the firm's short-run supply function is linear in K.

A competitive firm produces its output, y according to the production function: Y = F(K,L), where K and L are capital and labour inputs. The output price is p, and the prices of K and L are s and w, respectively. Assume that K is fixed in the short run. In addition, assume that the production function exhibits constant returns to scale in K and L. Define the firm's short-run profit function and show that the firm's short-run supply function is linear in K.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter10: Cost Functions

Section: Chapter Questions

Problem 10.3P

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