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Unformatted text preview: Demand for Inputs Since prots are = p x f ( K;L ) wL rK; the prot maximizing choice of L satises @ @L = 0 = p x MP L w: Thus, the rm hires labor until the amount of revenues generated by one more labor hour equals the hourly wage. Treating K as xed, so MP L depends only on L, the equation for the rm's labor demand curve is w = p x MP L . Similarly, holding L xed, the rm's demand for capi- tal is r = p x MP K . Demand for inputs are derived from demand for out- puts. The Firm's Long Run Prot Maximization Problem (or the short run prot maximization problem with 2 variable inputs) In the long run, the rm chooses all inputs to max- imize prots. Setting up prots as a function of L and K and optimizing (approach 1, discussed earlier) yields the rst order conditions: @ @L = 0 = p x MP L w @ @K = 0 = p x MP K r; which can be solved simultaneously for L and K, then plugged into the production function to nd x....
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- Spring '08