In: Economics
A firm’s production function be given by y = x1 + x2 with w1 and w2 being the price of inputs 1 and 2 respectively.
(a) Derive the conditional factor demands.
(b) Suppose w1 = 2 and w2 = 1. Find the long-run cost function for this firm. Derive and graph the firm’s long-run supply curve.
(c) Suppose the price of x2, w2, increases to $2 per unit. What is the long-run cost curve? Derive and graph the new supply curve.