Assume the prices of product L and K are $10.00 per unit and $20.00 per unit,...

Assume the prices of product L and K are $10.00 per unit and $20.00 per unit, respectively, and that Firm ABC has $1000 to spend. Assume that Firm ABC uses 10 of input L to produce its product at the optimal point

a.. Write out isocost equation for this problem

b.What combination of L, and K will Firm ABC use at the optimal point?

c. Now assume that the price of K changed from $20.00 per unit to $10 per unit, and assume the firm will still use 10 units of L to produce at the optimal point. Write out the new isocost function, and how much L and K will the firm use at the optimal point

d.Draw the isocost and isoquant graphs before the change and after the change in the price of K. Show the optimal points.

e. Write out the algebraic expression of profit maximization / cost minimization

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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