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1. A competitive rm produces a single output by choosing two inputs. Output price is p and the prices of inputs are 101,102 > 0. Prot is given by

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1. A competitive firm produces a single output by choosing two inputs. Output price is p and
the prices of inputs are 101,102 > 0. Profit is given by the function a
7r(x1, 11:2) = 33:61 a??? — 101 x1 — wz 2:2. where 0!, fl I5(0, 1). A rise in p (keeping ml and wz fixed) causes
a. increased input demand for both inputs.
b. increased demand for one, but not necessarily both of the inputs. c. depending on whether “)1 > 102 or 201 < 102, the demand for input 2 goes up or that
of input 1 goes up, respectively. (1. Not enough information to tell. Hint: Use Monotone Comparative Statics, look up Lec 6 slides.

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