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Unformatted text preview: Intermediate Microeconomics Homework Set 8: Profit Maximization and Cost Functions (Due 11/3) Exercise 1 A competitive firm uses two variable factors to produce its output, with a production function y = min { x 1 ,x 2 } . The price of factor 1 is $8 and the price of factor 2 is $5. Due to a lack of warehouse space, the company cannot use more than 10 units of x 1 . The firm must pay a fixed cost of $80 if it produces any positive amount, but does not have to pay this cost if it produces no output. What is the smallest integer price that would make a firm willing to produce a positive amount? Exercise 2 A firm uses 4 inputs to produce 1 output. The production function is f ( x 1 ,x 2 ,x 3 ,x 4 ) = min { x 1 ,x 2 } + min { x 3 ,x 4 } . (1) What is the vector of conditional factor demands to produce 1 unit of output when the factor price vector is w = (1 , 2 , 3 , 4). (2) What is the cost function?...
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This note was uploaded on 11/02/2010 for the course ECO 420K taught by Professor D during the Spring '10 term at University of Texas.
 Spring '10
 d
 Microeconomics

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