Consider a single-product firm under monopoly. The firm's profit function is given by π = PQ-wL-rK, where P=price, Q=output, L=labor, K=capital, w=wage, and r=rent.

Let the market demand function and the firm's production function be Q=PQ=P-2 and Q=K raised to the power (4/5)*L raised to the power (4/5), respectively.

(a) Is the production function homogeneous? If so, of what degree? Discuss the returns to scale for this function.
(b) Is the production concave? Is it quasiconcave? Show your work.
(c) Rewrite the profit function as a function of L and K. Is it homogeneous with respect to L & K? If so, of what degree?
(d) Is the profit function concave in L &K? Is it quasiconcave? Show your work.
(e) What would happen if this function pertained to a perfect competition instead of a monopoly?

Additional Requirements 

Min Pages: 1 
Level of Detail: Show all work 
Other Requirements: Production Function: Q=K٨4/5L٨4/5

    • 11 years ago
    single-product firm
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