Question

Joe Grow, an avid indoor gardener, has found that the number of happy plants, h, depends on the amount of light, l, and water, w. In fact, Joe noticed that plants require twice as much light as water, and any more or less is wasted. Thus, Joe’s production function is h = min{l,2w}.

C) Suppose that the price of light is 1 and the price of water is 1, and h = 4. In the graph, draw isocost in blue and figure out the least-costly input bundle.

(d) Suppose that the price of light is wl and the price of water is ww, and the number of happy plants is h. What is Joe’s conditional factor demand function for light l(wl ,ww,h) and that for water W(wl ,ww,h)? Do they depend on prices of inputs?

(e) As setting in (d), what is Joe’s cost function?

Answer 1