Problem 2. Consider the linear (perfect substitutes) production function f(x, y) = 12.7x + 19.4y. (A)...

Problem 2. Consider the linear (perfect substitutes) production function f(x, y) = 12.7x + 19.4y.

(A) How many units of good y would be a perfect substitute for 1 unit of good x? What is the slope of the firm’s isoquants?

(B) Suppose the input prices are (px, py) = (5, 8). What is the slope of the isocost lines? How much output does the firm get when it inputs $1 worth of good x? How much output does the firm get when it inputs $1 worth of good y?

(C) Suppose this firm has a production quota of q = 500 units. Find the minimized cost C(500) and the corresponding conditional factor demands.

(D) Draw the firm’s level-500 isoquant, as well as the isocost lines. Indicate the cost minimizer on your diagram.

Expert Solution

Rahul Sunny answered 2 years ago

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