A firm uses labor (L) and capital (K) to produce output (q) according to the function: q= L ².K In the short-run, the firm's level of capital is fixed at one unit (K 1). Assume the firm has already paid a fixed cost of $1 (F = 1) for their one unit of capital. In addition, assume that each unit of labor must be paid a wage of $1 (w = 1). If the firm can sell each unit of output at a price of $6 ( p = 6), answer the following two questions: A) What is the firm's profit maximizing level of output in the short-run? Profit maximizing q 3 = B) What is the maximum profit the firm can earn in the short-run? Maximum profit 8 = dollars
A firm uses labor (L) and capital (K) to produce output (q) according to the function: q= L ².K In the short-run, the firm's level of capital is fixed at one unit (K 1). Assume the firm has already paid a fixed cost of $1 (F = 1) for their one unit of capital. In addition, assume that each unit of labor must be paid a wage of $1 (w = 1). If the firm can sell each unit of output at a price of $6 ( p = 6), answer the following two questions: A) What is the firm's profit maximizing level of output in the short-run? Profit maximizing q 3 = B) What is the maximum profit the firm can earn in the short-run? Maximum profit 8 = dollars
Chapter10: Cost Functions
Section: Chapter Questions
Problem 10.7P
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Transcribed Image Text:A firm uses labor (L) and capital (K) to produce output (q) according to the function:
q= L ².K
In the short-run, the firm's level of capital is fixed at one unit (K 1). Assume the firm has already
paid a fixed cost of $1 (F = 1) for their one unit of capital. In addition, assume that each unit of
labor must be paid a wage of $1 (w = 1). If the firm can sell each unit of output at a price of $6 (
p = 6), answer the following two questions:
A) What is the firm's profit maximizing level of output in the short-run?
Profit maximizing q 3
=
B) What is the maximum profit the firm can earn in the short-run?
Maximum profit 8
=
dollars
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