A firm produces mineral water according to the following hourly production function y = ln(k+1) +...

A firm produces mineral water according to the following hourly production function y = ln(k+1) + ln(l+1), where k is the amount of capital and l the amount of labor used. Suppose that mineral water can be sold for $60 a ton. Capital goods can be rent at the rate of $15 an hour and the wage rate for workers is $10 an hour.

c) If the firm tries to maximize its profit in the long run, how many units of capital should it rent? How many workers should it hire? (10 points)

d) Suppose that the price of mineral water goes up to $70 a ton. Should the firm hire more workers in the long run? Please explain why. (4 points)

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Expert Solution

Rahul Sunny answered 1 month ago

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