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max II₁ = A₂K@NwNt - rt K₁ K>0, N₁20

max II₁ = A₂K@NwNt - rt K₁ K>0, N₁20

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Find first order conditions that characterize the optimal firm behavior considering that the firm takes wt and rt as given.

max_ II₁ = A₁ K&N-awtNt - rtKt Kt≥0, Nt 20
Transcribed Image Text:max_ II₁ = A₁ K&N-awtNt - rtKt Kt≥0, Nt 20
Expert Solution
Step 1

Given profit function 

∏t=AtKtαLt1-α-wtNt-rtKt                 ..... (1)

We have to find first-order conditions to optimize the given equation. 

First order condition: 

∂∏∂Kt=0 and∂∏∂Lt=0

Here K and L are decision variables.

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How do we use these FOCs to show that (wtNt)/Yt =(1-α) if Yt = At Ktα Nt1-α

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