3. A firm has a production function, q = k0.5 10.5, where q is daily output (in kilogram) and I and k are daily inputs of worker-hours and machine-hours respectively. In the short run, the firm's machine-hours is fixed at k = 40 hours. The rental rate for k is v= £3, and the wage rate for I is w = £12. In a perfectly competitive market, the output yields a price P = £12 per kilogram. Derive the firm's short-run total cost (STC) function. (a) (b) (c) Derive the firm's profit function. What is the necessary first-order condition for the firm to maximise profit when /> 0? Compute the profit-maximising amount of labour as a function of the wage. What is the effect of an increase in wage on the firm's optimal employment level?
3. A firm has a production function, q = k0.5 10.5, where q is daily output (in kilogram) and I and k are daily inputs of worker-hours and machine-hours respectively. In the short run, the firm's machine-hours is fixed at k = 40 hours. The rental rate for k is v= £3, and the wage rate for I is w = £12. In a perfectly competitive market, the output yields a price P = £12 per kilogram. Derive the firm's short-run total cost (STC) function. (a) (b) (c) Derive the firm's profit function. What is the necessary first-order condition for the firm to maximise profit when /> 0? Compute the profit-maximising amount of labour as a function of the wage. What is the effect of an increase in wage on the firm's optimal employment level?
Chapter10: Cost Functions
Section: Chapter Questions
Problem 10.3P
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