Question

14.       Use Excel to solve the following. A firm’s objective is to Maximize Profits and Minimize Costs. Demand is

Q = 400 – 2*P,

The firm’s production function is:

Q = 5*L^.6*K^.5

Total Cost is:

TC = P_L*L + P_K*K = $6*L + $12*K

The objective is to maximize Profit: Profit = TR – TC.

Find the Profit-Maximizing Price.

A.        94.2                 B.        101.1               C.        111.4               D.        115.3               E.         121.4

15.       Refer back to the problem in question#14.  What is the cost minimizing ratio of marginal product to input price?

A.        .30                   B.        .47                   C.        .56                   D.        .64       E.         .70

Answer 1

cost-minimizing is the same as the profit maximization

steps:--

1) First, i have found out the K & L in terms of Q by the cost-minimizing procedure, i.e. MRTS = w/r

2) Then, i have written down the profit in terms of Q

3) maximize the profit w.r.t Q

4) find out the Q*

5) Find out the profit-maximizing P*

Calculation below:--