isi

[AJ]

we can't have a budget equation..
we have an endowment of 100 units of capital, but we cant sell it and buy labor...
to whom will we sell it.. its the endowment of whole economy.. economy cant covert capital into labor..
"100r" ..cant be our budget....

I don't think we can approach it this way!

[Chocolate Frog]

Given the production function, it's clear that L = K. Since no information is available about the demand for the product, I guess we'll have to presuppose that price will be such that it will support whatever level of factor inputs employed. In that case, all 100 units of capital and 100 unites of labour will be employed.

Now, I have an elementary doubt. If a factor input must necessarily be used for production (like 100 units of capital in this case), should its cost be included in the marginal cost of the firm? Surely, the producer does not have to decide at the margin whether to employ more or less of that factor.

If the above line of reasoning is correct, rental rate of capital will be whatever drives profits to zero. In this case, it'll be (p - 2).

[neha.]

Hi amit sir, could you please give the final take on how to go about doing this question?