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FACTOR PRICES QUESTION Imagine firm Oracle is producing computers following production function q(L,K) =L^0.5 K^2. In...

FACTOR PRICES QUESTION

Imagine firm Oracle is producing computers following production function q(L,K) =L^0.5 K^2. In the short run, capital is fixed at K¯ = 5. Oracle faces price p = 50 and can hire as many workers as it would like at a constant wage w = 25.


A. Find equilibrium labor (L∗) and wages.

B. What are Oracle’s profits at this equilibrium?


C. Prove that this profit level is a global maximum.

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