The production function for a competitive firm is Q = K^.5L^.5.The firm sells its output at a price of $10,and can hire labor at a wage of $5.Capital is fixed at one unit and costs $2.The maximum profits are: A) 3. B) 10. C) 15. D) None of the answers are correct.

Question

Quizplus · Accepted Answer

The production function is Q = K^0.5 * L^0.5. With K fixed at 1, Q = L^0.5. The revenue is 10Q, and the cost is 5L + 2. To maximize profit, set marginal revenue equal to marginal cost: 10 * (0.5L^-0.5) = 5. Solving gives L = 1. The profit is 10*1 - 5*1 - 2 = 3.

The Production Function for a Competitive Firm Is Q =