3. A perfectly competitive firm produces output y using two factors of production (inputs), labour L...

3. A perfectly competitive firm produces output y using two factors of production (inputs), labour L and capital K. The firm’s production function is ?(?, ?) = (?^1/2 + ?^1/2) ^2. The wage rate is w = 9 and the rental price of capital is r = 1.

a. Find the long run equilibrium price p in this market.

b. Suppose in the short run, capital is fixed at K = 1. The output price in the short run is p = 3. Find the firm’s profit maximizing output in the short run.

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Expert Solution

Rahul Sunny answered 1 year ago

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