Quiz 16 Cost Minimization3 Ans

Quiz 16 Cost Minimization3 Ans - Shomu Banerjee ECON 201...

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Shomu Banerjee ECON 201 COST MINIMIZATION #3 ANSWERS Suppose a firm has a production function: y = 1 x 2 = x 1 1/2 x 2 1/2 where y is the output and x 1 and x 2 are inputs. The marginal productivity for the inputs is given by MP 1 = x 2 1/2 2 x 1 1/2 and MP 2 = x 1 1/2 2 x 2 1/2 . (a) Calculate the firm’s technical rate of substitution. ( Hint : TRS = - MP 1 / MP 2 ) Using the hint and simplifying, we get TRS = x 2 x 1 . (b) The price of the inputs are fixed at w 1 and w 2 . Find the optimal input combinations x 1 * and x 2 *. Set the TRS = - w 1
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This note was uploaded on 10/26/2010 for the course ECONOMICS ECON 201 taught by Professor Dr.shomubanerjee during the Summer '07 term at Emory.

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