Cost function of the firm: 1 C (W₁, W₂, W3, 9) = q ² (₁ + W2 W3 (+1) a) Find the conditional factor demands. Denote inputs by x₁. b) Find the unconditional factor demands, assuming that the firm faces a purely competitive market with output price p. c) Verify the firm's Slutsky equation for x₁. Obtain the substitution and scale effects. Will the demand for x₁ increase when output q increases?

Cost function of the firm: 1 C (W₁, W₂, W3, 9) = q ² (₁ + W2 W3 (+1) a) Find the conditional factor demands. Denote inputs by x₁. b) Find the unconditional factor demands, assuming that the firm faces a purely competitive market with output price p. c) Verify the firm's Slutsky equation for x₁. Obtain the substitution and scale effects. Will the demand for x₁ increase when output q increases?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Cost function of the firm:
-1
1
+
+
W2
C(W1, W2, W3, q) = q²
\w1
W3.
a) Find the conditional factor demands. Denote inputs by xị.
b) Find the unconditional factor demands, assuming that the firm faces a purely
competitive market with output price p.
c) Verify the firm's Slutsky equation for x1. Obtain the substitution and scale effects. Will
the demand for x, increase when output q increases?

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Step 2: Compute the conditional factors demand and denote the inputs

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Step 3: Compute the unconditional factors demands

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Step 4: Verify the firm’s Slutsky equation

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