Suppose a firm uses two inputs: capital, K, and labour, L. The profit function is π(K, L, p, w, r) = pf(K, L) − wL − rK where p is the output price and w and r are the wage rate and rental rate respectively. (a) Evaluate the rate of change in the maximum profit function from a change in p. (b) Evaluate the rate of change in the maximum profit function from a change in w. (c) Evaluate the rate of change in the maximum profit function from a change in r.
Suppose a firm uses two inputs: capital, K, and labour, L. The profit function is π(K, L, p, w, r) = pf(K, L) − wL − rK where p is the output price and w and r are the wage rate and rental rate respectively. (a) Evaluate the rate of change in the maximum profit function from a change in p. (b) Evaluate the rate of change in the maximum profit function from a change in w. (c) Evaluate the rate of change in the maximum profit function from a change in r.
Chapter10: Cost Functions
Section: Chapter Questions
Problem 10.6P
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Suppose a firm uses two inputs: capital, K, and labour, L.
The profit function is π(K, L, p, w, r) = pf(K, L) − wL − rK where p is the output price and w and r are the wage rate and rental rate respectively.
(a) Evaluate the rate of change in the maximum profit function from a change in p.
(b) Evaluate the rate of change in the maximum profit function from a change in w.
(c) Evaluate the rate of change in the maximum profit function from a change in r.
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