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What is each firms fixed cost

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Problem #1 Consider two firms that produce a single output good, y, using two inputs: Capital, K, and labor, L. the prices of each unit of capital and labor are r and w, respectively. The output good y sells for $p per unit.

Firm A's production function is y = fA(K,L) = K1/4 L1/4. The profit function is thus:
πA(K,L) = K1/4 L1/4 - rK -wL

a. Find the profit maximizing levels of K and L as functions of r, w, and p.

b. Suppose that r = w = $1 and p = $4. What is the profit maximizing level of output, y ?

Problem #2

Consider an industry in the U.S. facing aggregate (inverse) demand function:

p(y) = 1050 - 5y

The industry is currently in long run equilibrium. The market price is $225 and there are n = 11 firms:
Cv(y)=1/3 y3

What is each firm's fixed cost?

Reference no: EM132754960

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