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ECON 400
Hartman
Winter 2011
Problem Set V
(for Wednesday, February 2)
1.
A firm uses capital,
K
, and labor,
L
, to produce output,
Q
.
The firm is a price taker in the output market
and in both input markets; the output price is
0
p
, the price of the capital input is
0
r
, and the price of
the labor input is
0
w
The firm's supply function is
12
*( , , )
a
Qp
r
wm
p
rw
, its demand function for
capital is
42
3
b
Kp
r
w
p
r
w
, and its demand function for labor is
43
c
Lp
r
wn
p
r
w
.
What are
the values of the constants
a
,
b
,
c
,
m
, and
n
?
Explain your reasoning in each case.
[Hint: remember that
these functions are homogeneous of degree zero in prices, and recall the reciprocity relationships. ]
2.
A firm produces two outputs,
1
y
and
2
y
, using one input,
x
.
If the outputs of the two goods are
1
y
and
2
y
,
then the amount of the input required is given by the function
(, )
x gy y
.
The prices of the outputs are,
1
p
and
2
p
, respectively, and the price of the input is
w
.
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 Spring '08
 Ellis,G

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