Answered: b.) Cobb-Douglas. Assume the firm has a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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b.) Cobb–Douglas. Assume the firm has a generalized Cobb–Douglas technology y=θ∙x1α∙x2β,where0<α,β & θisaparameter.

1. Give a possible interpretation of the parameter θ. Outline the conditions that must be imposed on the parameters to ensure a solution to the profit maximization problem exists.

2. Assume the requested conditions are satisfied and a unique profit maximizing solution exists. How does the optimal choice of output, y∗, vary with the parameter θ?

b.) Cobb-Douglas. Assume the firm has a generalized Cobb-Douglas technology
y = 0·x.x₂, where 0 <a, ß & is a parameter.
1. Give a possible interpretation of the parameter 0. Outline the conditions that must be imposed on the
parameters to ensure a solution to the profit maximization problem exists.
2. Assume the requested conditions are satisfied and a unique profit maximizing solution exists. How
does the optimal choice of output, y*, vary with the parameter ?

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