Suppose in the short run, the firm can adjust the amount of labor L, and the...

Suppose in the short run, the firm can adjust the amount of labor L, and the amount of capital, K*, is fixed. The production function is ?(?, ?) = ?1/3? 1/3 . The price of output is p, the rent of capital is r, and the wage of labor is w.

a. Write down the profit of the firm in terms of K*, L, p, r, and w.

b. Suppose now ? ∗ = 125, ? = 27, ? = 2, and ? = 5. Write down the isoprofit equation when the profit is 0. (Hint: the quantity of output q, is a function of labor L)

c. ? ∗ = 125, ? = 27, ? = 2, and ? = 5. The firm is trying to maximize the profit in short run. Write down the first order condition and find how much labor the firm would like to hire.

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Expert Solution

Rahul Sunny answered 1 year ago

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