Scribd
Upload
6 views2 pages

Econ601 PS2

The document presents a problem set focusing on production functions, cost-minimization, and profit maximization for firms. It includes tasks such as sketching isoquant maps, deriving conditional factor demand functions, and solving for cost functions across various production technologies. Additionally, there is an extra question addressing the homogeneity and convexity of cost functions in relation to production functions exhibiting constant returns to scale and concavity.

Uploaded by

steph
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
6 views2 pages

Econ601 PS2

The document presents a problem set focusing on production functions, cost-minimization, and profit maximization for firms. It includes tasks such as sketching isoquant maps, deriving conditional factor demand functions, and solving for cost functions across various production technologies. Additionally, there is an extra question addressing the homogeneity and convexity of cost functions in relation to production functions exhibiting constant returns to scale and concavity.

Uploaded by

steph
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Problem Set 2

October 31, 2019

1. Suppose a firm’s production function is given by

f (x1 , x2 ) = min{2x1 + x2 , x1 + 2x2 }.

(a) Sketch the associated isoquant map.


(b) Find the firm’s conditional factor demand functions x1 (w, q) and x2 (w, q).

2. Consider a firm with a single-output production function

f (x1 , x2 ) = ln(1 + min{x1 , x2 }).

(a) Write the corresponding cost-minimization problem and solve for the conditional factor
demands x∗1 (w, q), x∗2 (w, q), and cost function c(w, q).
(b) Using the cost function derived in part (a), write the firm’s profit maximization problem
(where the only choice variable should be the choice of output q). Solve this problem for the
optimal input demands x1 (p, w) and x2 (p, w) and the profit function π(p, w).

3. Derive the cost function for the following technologies:


(a) f (x1 , ..., x2 ) = min{a1 x1 , a2 x2 , ..., an xn }.
n
P
(b) f (x1 , ..., xn ) = ai x i .
i=1
k
(c) f (x1 , x2 ) = min{a1 x1 , a2 x2 − k}, where k > 0 is a constant. Assume that x2 ≥ a2
.
1
(d) f (x1 , x2 ) = [xρ1 + x2 ρ] ρ , where ρ ≤ −1.

1
Extra question (not graded)

4. Let c(w, q) and x(w, q) be the cost function and conditional factor demand for a firm with
a many inputs and a single-output production technology described by production function f (x)
that exhibits constant returns to scale.
(a) Prove that if c(·) and x(·) both exist (i.e., the cost-minimization problem has a solution),
they are homogeneous of degree 1 in q.
(b) Prove that if the production function f (x) is concave, then the cost function c(w, q) is
convex in q. What is the economic interpretation of this result?

You might also like