Question: 1 A firm produces output according to the following production function: q = 10 K^1/4 L^1/4 The price of capital is r = 9 and the price of labor is w = 25 and there is a set-up cost F = 90 that the firm only pays if it decides to produce in the market. If the firm wants to produce 'q' units of output, solve the cost minimization problem. Obtain total cost C* (as a function of output level q). Now assume that the firm operates under monopoly and the inverse demand function is p = 115 - 2 q Use the solution to the cost minimization problem to solve the profit maximization problem of this firm. Determine this firm's price p*. Please Show your Work. a. 55 b. 75 c. 85 d. 65
Economics: Industrial Economics
Question: 1
A firm produces output according to the following production function:
q = 10 K^1/4 L^1/4
The
Now assume that the firm operates under
p = 115 - 2 q
Use the solution to the cost minimization problem to solve the profit maximization problem of this firm. Determine this firm's price p*. Please Show your Work.
a. 55
b. 75
c. 85
d. 65
Question: 2
A firm produces output according to the following production function:
q = 10 K^1/4 L^1/4
The price of capital is r = 9 and the price of labor is w = 25 and there is a set-up cost F = 90 that the firm only pays if it decides to produce in the market. If the firm wants to produce 'q' units of output, solve the cost minimization problem. Obtain total cost C* (as a function of output level q).
Now assume that the firm operates under monopoly and the inverse demand function is
p = 115 - 2 q
Use the solution to the cost minimization problem to solve the profit maximization problem of this firm. Then do the following:
Determine the Lerner Index for this market. Please Show your Work.
a. 0.840
b. 0.673
c. 0.769
d. 0.615
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