Suppose that Marie produces milk q using her own labor l and cattle k using the production function q = f(k, l) = k2/3ℓ1/3 Although Marie does not need to pay anyone to use either input, the opportunity costs of labor and cattle are w = 1 and v = 16, respectively, and P is the price of milk. a) Suppose that Marie’s stock of cattle is fixed at k0 = 8. Set up her short run cost minimization problem and find her labor demand ℓ(q) and cost function SC(q). b) Find Marie’s short run marginal cost SMC(q) and average cost SAC(q) functions and find the quantity at which short run average cost is minimized. c) Set up Marie’s short run profit maximization problem and find her short run supply curve q(P).
Suppose that Marie produces milk q using her own labor l and cattle k using the production function
q = f(k, l) = k2/3ℓ1/3
Although Marie does not need to pay anyone to use either input, the
a) Suppose that Marie’s stock of cattle is fixed at k0 = 8. Set up her short run cost minimization problem and find her labor demand ℓ(q) and cost function SC(q).
b) Find Marie’s short run marginal cost SMC(q) and average cost SAC(q) functions and find the quantity at which short run average cost is minimized.
c) Set up Marie’s short run profit maximization problem and find her short run supply curve q(P).
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