Problem 3: Long-Run Cost minimization Consider two cost-minimizing firms producing drones as their single output. Firm 1 produces traditionally, using capital K and labor L as inputs. Firm 2 has a close relationship with an artificial-intelligence research laboratory and may also use androids A as an input. The input prices are r > 0 for capital, w > 0 for labor, and a > 0 for androids. The firms’ production functions are as follows: F1 (K, L)=5KL F2 (K, L)=(L + 2A)4K Question: A customer orders exactly ¯q = 2000 drones from each firm. Describe each firm’s cost-minimization problem in formal terms

Microeconomic Theory
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ISBN:9781337517942
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Chapter9: Production Functions
Section: Chapter Questions
Problem 9.1P
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Problem 3: Long-Run Cost minimization

Consider two cost-minimizing firms producing drones as their single output. Firm 1 produces traditionally, using capital K and labor L as inputs. Firm 2 has a close relationship with an artificial-intelligence research laboratory and may also use androids A as an input.
The input prices are r > 0 for capital, w > 0 for labor, and a > 0 for androids.
The firms’ production functions are as follows:

F1 (K, L)=5KL
F2 (K, L)=(L + 2A)4K

Question: A customer orders exactly ¯q = 2000 drones from each firm. Describe each firm’s cost-minimization problem in formal terms

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