Course Solutions Uncategorized (Answered) : Leontief Firm X’s production function is Y = 2 (min(L,K)0.5) price of labor (L) = w, price of capital (K) = r. Both are po

(Answered) : Leontief Firm X’s production function is Y = 2 (min(L,K)0.5) price of labor (L) = w, price of capital (K) = r. Both are po

June 27, 2024June 27, 2024| adminadmin| 0 Comment| 7:39 pm
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Leontief

Firm X’s production function is Y = 2 (min(L,K)0.5)

price of labor (L) = w, price of capital (K) = r. Both are positive. What is the optimal supply of output as a funciton of wages and rental price of capital.

Expert Answer

So the function has 2 points of inflection

So if wr

Y = 2*( r* 0.5 ) = r

So optimal is when r = w

So Y=w=r

https://d2vlcm61l7u1fs.cloudfront.net/media%2F86c%2F86c13b65-23f6-42df-8def-f93db7e2f9bb%2Fphph4qo0u.png

So we see the red graph is Y, hence the optimal is at r=w

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