Compute the producers surplus and profits of the two firms

Reference no: EM13221194

Product X is traded on the international market at a price p = 0.5. Consider a small open economy where there are two firms, A and B, producing product X. The two firms have a production function q^A = 10l^1/2k^1/2 and q^B = 10 min{l, k} where q^A and q^B are the quantities of X produced by firm A and B, respectively. The cost of labour and capital in this small economy are w = 1 and r = 5, respectively. Assume that in the short-run, capital is fixed and equal to 100 for both of the firms.

(a) Write the cost function of each firm, distinguishing fixed costs and variable costs.

(b) Compute the quantity of X that these two firms will produce at the price p = 0.5.

Reference no: EM13221194

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