The economy is populated by two firms. One firm produces cars (c), the other produces beans (b). The production function of each firm i = {c,b} is Y; = KL Cars are capital intensive, hence ce > os. The price of cars is pe and the price of beans is p. Firms take all prices as given. The unit cost of labor is w and the unit cost of capital is r. The total amount of labor and capital in the economy are, respectively, L and K. 1. Write down the optimality condition for capital and labor of each firm 2. Derive the capital-to-labor ratio of each firm

The economy is populated by two firms. One firm produces cars (c), the other produces beans (b). The production function of each firm i = {c,b} is Y; = KL Cars are capital intensive, hence ce > os. The price of cars is pe and the price of beans is p. Firms take all prices as given. The unit cost of labor is w and the unit cost of capital is r. The total amount of labor and capital in the economy are, respectively, L and K. 1. Write down the optimality condition for capital and labor of each firm 2. Derive the capital-to-labor ratio of each firm

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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