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Unformatted text preview: y = 3? The expenditure of $12 is insufficient to produce the output level of 3 but sliding the isocost up as shown by the dashed red line shows that an expenditure of $15 will produce this output level in the cheapest way. (d) Calculate the cost function c ( w 1 , w 2 , y ). From the production function, square both sides. Then it follows that x 1 * = y 2 and x 2 * = y 2 /2. Therefore the cost function is c ( w 1 , w 2 , y ) = w 1 y 2 + w 2 y 2 /3 = ( w 1 + w 2 /3) y 2 ....
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- Summer '07