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    help with practice prelim?

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    Hi all,

    Me and my fellow first years are struggling with a prelim question, and I'm wondering if anyone can help. Perhaps it'll be good practice for you!

    Assume a firm has two inputs, L and k., to produce an output q using q=f(k,l). Also assume the firm maximizes profit per unit of L

    Give first order conditions. Assume second order conditions are satisfied.

    Does firm minimize cost of producing q? Does it use more or less of efficient quantity of L?

    Suppose the firm operates in a competitive industry where all other firms maximize profit. Does the firm that maximizes profit per L choose inputs or output levels differently than other firms?
    MSU bound

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    Quote Originally Posted by Keyser-Soze View Post
    Hi all,

    Me and my fellow first years are struggling with a prelim question, and I'm wondering if anyone can help. Perhaps it'll be good practice for you!

    Assume a firm has two inputs, L and k., to produce an output q using q=f(k,l). Also assume the firm maximizes profit per unit of L

    Give first order conditions. Assume second order conditions are satisfied.

    Does firm minimize cost of producing q? Does it use more or less of efficient quantity of L?

    Suppose the firm operates in a competitive industry where all other firms maximize profit. Does the firm that maximizes profit per L choose inputs or output levels differently than other firms?
    “Does firm minimize cost of producing q? Does it use more or less of efficient quantity of L?

    Not necessarily. The two FOCs demand p*dq/dL=w and p*dq/dk=r are satisfied simultaneously
    " Also assume the firm maximizes profit per unit of L" means dq/dL=w
    we cannot guarantee p*dq/dk=r
    and so the company is not necessarily minimize cost of producing q

    Last edited by finalweek; 03-01-2010 at 06:00 PM.

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    Quote Originally Posted by Keyser-Soze View Post
    Hi all,

    Me and my fellow first years are struggling with a prelim question, and I'm wondering if anyone can help. Perhaps it'll be good practice for you!

    Assume a firm has two inputs, L and k., to produce an output q using q=f(k,l). Also assume the firm maximizes profit per unit of L

    Give first order conditions. Assume second order conditions are satisfied.

    Does firm minimize cost of producing q? Does it use more or less of efficient quantity of L?

    Suppose the firm operates in a competitive industry where all other firms maximize profit. Does the firm that maximizes profit per L choose inputs or output levels differently than other firms?

    "Suppose the firm operates in a competitive industry where all other firms maximize profit. Does the firm that maximizes profit per L choose inputs or output levels differently than other firms?"

    not necessarily chosse the same inputs or outputs

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