Question

Please show all steps to the 5 solutions:

A firm makes two goods, A and B, with production functions ??^A = 2??^A(??^A)^2 and
??^B = 16??^B+4??^B. The firm has a fixed total supply of capital of 1 unit, and it can hire labor at PL = $10 for the first 5 hours, and for the overtime rate of PL = $20 after that, up to 10 hours. Output prices are PA = $2 and PB = $1.

i) So that capital’s marginal revenue product is equal for A and B, what must LA be?

ii) How much labor should the firm hire to work on B?

iii) If KA = 1, what is the overall revenue from QA and QB?

iv) If KA = 0, what is the overall revenue from QA and QB?

v) What is the profit contribution (revenue minus labor cost)?

Answer 1