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A price taking firm makes machine(y) using capital and labour
production funtiom; Y=L^.5K^.5. Labour can br hired at the beginning of every week and capital can be hired only at beginning of every month. wages=rent=10
short run (week) total variable cost of producing mchine tools is 10Y^4/K* when capital is fixed at K*
IN the long run (month) when both inputs can be varie the totsl cost of produing Y machine tools is 20Y^2
a)a beginning of month january firm is making long run decision given that price of machine tools is 400. what is the long run profit maximising no. of machine tool? how many unts of L and K should the firm hire at the beginning of jan ?
b) suppose at th beginning of third week of jan , the price of machine tools increases to 691.20. what is the new short run profit maximising level of output? how many extra level of L should the firm hire for the rest of jan ?
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