The cost equation for two inputs is always C = w1x1 + w1x2. Find the conditional factor demands for inputs x1 and x2 when the production function is y = 3(x1x2)1/2. Note that MP1 = 3/2(x1 -1/2x2 1/2),...

Included in Files


The cost equation for two inputs is always C = w1x1 + w1x2. Find the conditional factor demands for inputs x1 and x2 when the production function is y = 3(x1x2)1/2. Note that MP1 = 3/2(x1 -1/2x2 1/2), and MP2 = 3/2(x1 1/2x2 -1/2). TRS = 3/2(x1 -1/2x2 1/2)/ 3/2(x1 1/2x2 -1/2) = x2/x1. Slope of Isocost curve = w1/w2 Tangency condition: x2/x1= w1/w2 Now we need our constraint, the production function (Equation 2), to solve for x1 and x2 as functions of y, w1, w2 (level of output and input costs). Production Function: y = 3(x1x2)1/2 Now, use the same steps to do find the condition to find the conditional factor demands for inputs x1 and x2 when the production function is y = 4 x1x22. Note that MP1 = 4(x2 2), and MP2 = 8(x1 x2). Find the conditional factor demands for inputs x1 and x2 when the production function is y = 9 x11/3x21/3. Note that MP1 = 3 (x1 -2/3x2 1/3), and MP2 = 3(x1 1/3x2 -2/3).