Question

. Suppose the production function of a firm is given by q = L^1/4K^2/4. The prices of labor and capital are given by and w = $9 and r = $18, respectively.

1. Derive the long run cost function. Show your work.
2. What happens to the firm’s average cost as it increases production and why?
3. Derive the firm’s long run supply function.
4. What will be the quantity of output that maximizes the firm’s profit when the price of output is $1?
5. Suppose the government imposes a $0.5 unit tax on producers (charged for each item sold). Derive the new post-tax supply function.

Answer 1

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