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A firm faces the following production function y = K0.5L0.4 where the rental cost of capital...

  1. A firm faces the following production function

    y = K0.5L0.4
    where the rental cost of capital is 20, the wage is 5 and the price of the output is 25.

    1. (a) In short run, capital cannot be changed and is equal to 25. What will be the maximum profit of the firm?

    2. (b) What can the firm do when we get to the long run? What is the optimum level of output and the maximum profit in the long-run?

    3. (c) If this firm minimizes its cost, what are the conditional factor demands?

    4. (d) Determine the firm's cost function if there is no fixed cost.

    5. (e) At what quantity is the average cost minimized?

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