Suppose firms have a Leontief production technology. Firms maximize the production under the budget constraint and non-negativity constraints: max Y = min{AK, L} subject to K + L < 6, K 2 0, L 2 0 Y is the firms' output and K and L are capital and labor inputs. A is the productivity of capital. Firms take A as given and choose K and L to maximize the production. Q3: Suppose A = 1. Derive the optimal value of K. Q4: Suppose A = 2. Derive the optimal value of K. Q5: Suppose A = 3. Derive the optimal value of K. %3D

Suppose firms have a Leontief production technology. Firms maximize the production under the budget constraint and non-negativity constraints: max Y = min{AK, L} subject to K + L < 6, K 2 0, L 2 0 Y is the firms' output and K and L are capital and labor inputs. A is the productivity of capital. Firms take A as given and choose K and L to maximize the production. Q3: Suppose A = 1. Derive the optimal value of K. Q4: Suppose A = 2. Derive the optimal value of K. Q5: Suppose A = 3. Derive the optimal value of K. %3D

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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