Suppose a firm the following production function: f(x1,x2)=x_1^(1/2) x_2^(1/2) This firm purchases inputs and sells output...

Suppose a firm the following production function: f(x1,x2)=x_1^(1/2) x_2^(1/2)

This firm purchases inputs and sells output in competitive markets. The price of output is $10 per unit and the prices of the inputs x1 and x2 are $10 and $2 respectively. In the short run x2 is fixed and equal to 16. The marginal product for input 1 is: MP1=4/(x_1^(1/2) )

a) What is the profit maximizing level of input 1 for this firm to hire?
b) What is the profit maximizing level of output and the associated level of profits?
c) Derive a function describing isoprofit lines for this firm. Calculate and describe the slope of an isoprofit line for this firm.
d) Suppose the price of input 1 increases to $20. Use your isoprofit function to find the optimal amount of input 1 for this firm to hire.

Expert Solution

I hope this answer helps.

Rahul Sunny answered 3 hours ago

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