Question from Past Microeconomics Qualifying Exam[]

Fall 2000 - Section II, Question Five, George Mason University Suppose that a firm in a competitive market faces an exogenous price (P) for its output (Q) and exogenous prices for its inputs (labor and capital). Labor costs w $ / unit and capital costs r $ / unit. The firm engages in technologically effcient production, and has the following long run total cost function, C = c(Q, r, w) which has the conventional properties.

  • a. Characterize the profit function and the profit maximizing output for the firm
  • b. Verify that the first order condition in part "a" does indeed characterizes the profit maximizing output given the conventional assumptions. Explain your reasoning and assumptions.
  • c. Characterize the firm's long run supply curve.
  • d. What qualitative effect would an increase in wage rates have on the firm's profit maximizing output in the long run?


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