Fully explain in complete sentences how a price-taking firm with decreasing returns to scale identifies their profit maximizing production level given their production function, the input prices they face and the market price for their product. You should avoid using equations whenever possible
When firm faces a decreasing return to scale then firms marginal cost increases. However in case of perfect competition, firm can’t change the price and profit is maximised when cost and benefit from the last unit should be same. Thus P=MC is the profit max quantity
In input market the value of marginal product of last input equal to the price of that input
Fully explain in complete sentences how a price-taking firm with decreasing returns to scale identifies their...
1. If a profit-maximizing competitive firm has constant returns to scale, then its long-run profits must be zero. True or False? Explain your answer. 2. A firm is producing output using one variable factor of production. The firm’s production function is y = 8x¹ˡ². The price of the output is $24 and the price of input is $8 per unit. How many units of the input should the firm use?
Consider a two input firm which faces an aggregate technology for perfect compliments of y=min(3x1,x2). a. Plot isoquants for y=3,6 and 9 b. What are the returns of scale for this production function? c. For all possible prices on output, p, and on inputs, w1 and w2, are their price combinations for which a profit maximizing firm would not be able to select a price maximizing quantity (or at least one greater than 0)? Give a restriction on prices such...
9. Suppose the firm's production function is given by f(K,L) = min (Kº,L"} (a) For what values of a will the firm exhibit decreasing returns to scale? Constant returns to scale? Increasing returns to scale? (b) Derive the long-run cost function and the optimal input choices. (c) Suppose the capital is fixed at K = 10,000 and a = 1. Assuming that the firm wants to produce less than 100 units, derive 10. Consider the production function: f(K,L)=KLI. Let w...
9. Suppose the firm's production function is given by f(K,L) min (K",L" (a) For what values of a will the firm exhibit decreasing returns to scale? Constant returns to scale? Increasing returns to scale? (b) Derive the long-run cost function and the optimal input choices. (c) Suppose the capital is fixed at R = 10,000 and a =. Assuming that the firm wants to produce less than 100 units, derive 10. Consider the production function: f(K, L) = KLi. Let...
If a price taking firm's production function is quasi-concave and exhibits decreasing marginal product with respect to each input, then there exists at least one solution for the profit maximisation problem when all inputs are variable. Select one: O True O False
If bagel shop has decreasing returns to scale: In the short run - how would the shop react to an increase in the output price (p)? a decrease in wage (w)? In the long run - how would the shop react to an increase in capital (r)? (i.e., how would the supply curve, profit-max. labor demand shift, input choice? Draw a diagram if possible)
Exercise 5 Cobb-Douglas and Decreasing Returns to Scale
(Farming)
Exercise 5. Cobb-Douglas and Decreasing Returns to Scale (Farming) There are over 2 million farms in the United States, covering almost a billion acres of agricultural land. Consider farming output, y (measuring thousand bushels of corn), as a function of short-term factors, such as water, fertilizer, seeds, considered as a composite input, X, and land as a long-term factor, L. Both are necessary, and they each present diminishing marginal returns. Assume...
NEED ANSWERS OF PART (f,g,h,j)
Problem 2 [21 marks] Consider a firm that uses two inputs. The quantity used of input 1 is denoted by x, and the quantity used of input 2 is denoted by x2. The firm produces and sells one good using the production function f(x1, x2)-4x053x25. The final good is sold at price P $10. The prices of inputs 1 and 2 are w$2 and w2 $3, respectively. The markets for the final good and both...
A price-taking and profit-maximizing firm produces one output at the rate y> 0 using one input r>0 by way of the production function () , where f(x)竺2x2 . The firm's output sells at the price p >0 while the input is purchased at the price wo (a) (b) (c) Determine the lalue of the input that solves the FONC, and denote it by x (p,w). Is Set up the profit maximization problem. Derive the FONC and SOSC. x(p,w) unique? Explain....
A firm uses two inputs x1 and x2 to produce
output y. The production function is given by f(x1, x2) = p
min{2x1, x2}. The price of input 1 is 1 and the price of input 2 is
2. The price of output is 10.
4. A firm uses two inputs 21 and 22 to produce output y. The production function is given by f(x1, x2) = V min{2x1, x2}. The price of input 1 is 1 and the price...