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Unformatted text preview: Q = 4 K 1/2 L 1/2 a) What is the firms short run demand for labor (in terms of w ) when r = 2 and K = 9? Now consider the long run, allowing the level of both r and K to vary in addition to w and L . b) Write down the formal profit maximization problem that will yield factor demands. c) Attempt to solve this problem using the first order conditions, and describe the intuition for the result. (If youd like, you can work out the two-dimensional second order conditions as well, but I wont expect this on an exam.) d) What can we say about the number of firms in long run equilibrium in this industry? Additional practice problems from Perloff Chapter 15: 2, 19, and 21...
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This note was uploaded on 08/09/2009 for the course ECON 100B taught by Professor Rauch during the Winter '07 term at UCSD.
- Winter '07