price taking firm has the production function, q = f(l) = √ l where q is the output and l is the labor input. The price of labor input or wage is equal to $ 5, the output price is given by p, and the fixed cost is $80.
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A price taking firm has the production function, q = f(l) = √ l where q is the output and l is the labor input. The price of labor input or wage is equal to $ 5, the output price is given by p, and the fixed cost is $80.
a. Find the prices at which the firm makes a positive profit, and graph the prices along the curve, Hint find the profit function (SOLVE)
b. Find the firm’s supply curve. (chek if correct)
Q^2 = L
TC or C(q) = wl = wq^2
The level of output wich firm maximizes profit is firms supply function
We know profit function = pq – wq^2
dπ/dq = p – 2wq =0
p=2wq
q(p,w) = p/2w
thus supply function q=p/2w
c. When p=10, since the firm makes a negative profit, it is better not to produce. True or False? Explain Hint part (a) we found positive values use (a) to demonstrate (SOLVE)
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