A firm uses a single input to produce a commodity according to its short-run production function f(x) = 4√ x, where x is the number of units of input. The commodity sells for $100 per unit. The input cost $50 per unit. (a) Write down a function that states the firm’s profit as a function of the amount of input. (b) What is the profit maximizing amount of input and output? (c) Suppose the firm is taxed $20 per unit of its output and the price of its input is subsidized by $10, explain in detail how this will affect the new input and output levels?

A firm uses a single input to produce a commodity according to its short-run production function f(x) = 4√ x, where x is the number of units of input. The commodity sells for $100 per unit. The input cost $50 per unit. (a) Write down a function that states the firm’s profit as a function of the amount of input. (b) What is the profit maximizing amount of input and output? (c) Suppose the firm is taxed $20 per unit of its output and the price of its input is subsidized by $10, explain in detail how this will affect the new input and output levels?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.9P

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