Unformatted text preview: diagram and label your diagram completely. b. Find conditions that determine Pareto optimal allocations for this economy. c. Find a competitive equilibrium for this economy. 3. Let f ( x 1 ,x 2 ) = √ x 1 + √ x 2 be the production function of a ﬁrm. Let input prices be w 1 = $2, w 2 = $8, and output price p = $16. Assume input 2 is ﬁxed in the short run at ¯ x 2 = 100. a. Are the inputs perfect substitutes or perfect complements? b. Find the LR and SR proﬁt-maximizing quantities of the inputs at the given prices. Calculate maximum proﬁts. c. What are the LR and SR cost-minimizing quantities of the inputs that the ﬁrm should use to produce y = 90? d. Find the ﬁrm’s LR and SR cost functions. 1...
View Full Document
- Fall '09
- Economics, Pareto optimal allocations, inputs perfect substitutes, SR cost-minimizing quantities, SR proﬁt-maximizing quantities, SR cost functions