2. A firm has production function Q = k^1/2L^1/2 and faces a wage for the labor...

2. A firm has production function Q = k^1/2L^1/2 and faces a wage

for the labor input w = 1 and a rental price of capital r = 9

a. The policy of the Federal Reserve brings the rental price of capital to r = 4 Graph the change of the cost minimizing equlibrium explaining the type of substitution that is happening.

b. Compute the new cost function. Suppose a monopoly and show graphically if after this change in the cost function is going to produce more or less.

Expert Solution

The solution of this problem would be........

Rahul Sunny answered 2 years ago

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