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reviewprelim2_soln

# reviewprelim2_soln - Econ313-1 Spring 2005 Solution to...

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Econ313-1 Spring 2005 Solution to Review Prelim 2 Professor Talia Bar TA: Yinggang ZHOU

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Question 3 (a) Capital is fixed in the short-run. Let K ̄ 16. From the production function, we have L 2/5 16 1/4 y , where y is the production. Given p 10, w L 5 and w K 2 , the short-run profit is max L 10 L 2/5 16 1/4 5 L 2 16 The FOC is 20 2 5 L 3/5 5 Then, demand for the variable input–labor–is L 8 5 5/3 . The short-run profit is SR 20 8 5 5/3 2/5 5 8 5 5/3 32 12 8 5 2 3 32 15. 584 (b)Tof indthelongrunpro f i t: max L , K 10 L 2 5 K 1 4 5 L 2 K FOC 10 2 5 L 3 5 K 1 4 5 10 1 4 L 2 5 K 3 4 2 Divide one by the other to get: 8 K 5 L 5 2 Therefore: K 25 16 L Substitute into 10 2 5 L 3 5 K 1 4 5, 4 L 3 5 25 16 L 1

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4 L 7 20 25 16 1 4 5 4 5 25 16 1 4 L 7 20 L 4 5 20 7
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reviewprelim2_soln - Econ313-1 Spring 2005 Solution to...

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