Econ10A_PSET7

# Econ10A_PSET7 - Problem Set 7 Profit Maximization and...

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Problem Set 7 Profit Maximization and Supply 1. Suppose LTC(Q, w, r)= wrQ 2 a. Find LMC(Q, w,r) b. Find the firm’s supply function Q(P, w, r). c. Let w=2 and r=2 and P=4. What is the firms’ profit maximizing level of production? 2. LMC(Q, w, r) = .5 (wrQ) 1/2 . It currently faces w=4, r=4 and the price of output is P=17. It is currently producing 100 units/week. Should it increase production? Explain intuitively why or why not. 3. Suppose Q=L 1/2 is the firm’s production function. (It uses labor and no capital.) Suppose the wage rate is 4. What is its supply function? 4. If a firm’s long run supply function is given by the formula Q*(P,w,r)= [P/(w+r)] 1/2 , what is the formula for its marginal cost function? 5. Is the condition “Output price is greater than or equal to minimum short run average cost” a necessary condition for a profit-maximizing firm to be willing to produce a positive level of output in the short run? Is it a sufficient condition ? Explain. 6. A firm with production function F(L,K)=min(L,K) faces input prices w=2 and r=3. For

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Econ10A_PSET7 - Problem Set 7 Profit Maximization and...

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