Unformatted text preview: cost function. and output by . Write down the profit equation in terms of (c) For what parameter values is the For a price taking firm the price (the price), and the cost function in part (b) a concave function? is a constant. As such: For the “profit” function to be concave we would require: Since we see that in fact (d) What value(s) of maximizes the Hence, so long as the “profit” function will be strictly concave. function in part (b)? Additionally, derive the value function. We want to solve the unconstrained maximization problem: We know that so long as
the “profit” function is strictly concave. This means that if we find a stationary point, it
must be the “maximizer”. Now: Subbing back in yields the value function:
() 8 University of Toronto, Department of Economics, ECO 204, 2013  20143 (
(e) All else equal, what is the change in ) ( due to a 1% decrease in )
Interpret your answers in economic terms. We have: (
Assuming ) this means that in response to a lower market price, the competitive firm reduces output. Next: ( ) ( ) Assuming
this m...
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This homework help was uploaded on 02/15/2014 for the course E 204 taught by Professor Ajaz during the Winter '13 term at University of Toronto.
 Winter '13
 AJAZ

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