Exam 18: Profit Maximization

The production function is f(x₁, x₂) = _{1 2}. If the price of factor 1 is $10 and the price of factor 2 is $15, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

Philip owns and operates a gas station. Philip works 40 hours a week managing the station but doesn't draw a salary. He could earn $600 a week doing the same work for Terrance. The station owes the bank $100,000 and Philip has invested $100,000 of his own money. If Philip's accounting profits are $1,000 per week while the interest on his bank debt is $500 per week, the business's economic profits are

A competitive firm produces a single output using several inputs. The price of output rises by $4 per unit. The price of one of the inputs increases by $2 and the quantity of this input that the firm uses increases by 8 units. The prices of all other inputs stay unchanged. From the weak axiom of profit maximization we can tell that

If the value of the marginal product of labor exceeds the wage rate, then a competitive, profit-maximizing firm would want to hire less labor.

The production function is given by f(x) = . If the price of the commodity produced is $80 per unit and the cost of the input is $40 per unit, how much profits will the firm make if it maximizes profits?

During the height of the pet rock craze in the 1970s, the price elasticity of demand was estimated to be 1.20. Since pet rocks have a marginal cost of zero, a profit-maximizing seller of pet rocks would

When Farmer Hoglund applies N pounds of fertilizer per acre, the marginal product of fertilizer is 1 - bushels of corn. If the price of corn is $4 per bushel and the price of fertilizer is $1.20 per pound, then how many pounds of fertilizer per acre should Farmer Hoglund use in order to maximize his profits?

A competitive firm's production function is f(x₁, x₂) = 6 ₁ + 8 ₂. The price of factor 1 is $1 and the price of factor 2 is $4. The price of output is $8. What is the profit-maximizing quantity of output?

Just as in the theory of utility-maximizing consumers, the theory of profit-maximizing firms allows the possibility of Giffen factors. These are factors for which a fall in price leads to a fall in demand.

If the short-run marginal costs of producing a good are $20 for the first 400 units and $30 for each additional unit beyond 400, then in the short run, if the market price of output is $24, a profit-maximizing firm will

Diesel Dan is a contract truck driver. While his revenue is $1.50 per mile driven, the faster he drives, the greater the risk of a speeding ticket. The cost of driving his truck 1 hour at a speed of S miles per hour is C(S) = . To maximize his profit, Dan should drive

The production function is given by F(L) = . Suppose that the cost per unit of labor is $16 and the price of output is $8. How many units of labor will the firm hire?

Diesel Dan is a contract truck driver. While his revenue is $2.50 per mile driven, the faster he drives, the greater the risk of a speeding ticket. The cost of driving his truck 1 hour at a speed of S miles per hour is C(S) = . To maximize his profit, Dan should drive

Jiffy-Pol Consultants is paid $1,000,000 for each percentage of the vote that Senator Sleaze receives in the upcoming election. Sleaze's share of the vote is determined by the number of slanderous campaign ads run by Jiffy-Pol according to the function S = , where N is the number of ads. If each ad costs $4,900 approximately how many ads should Jiffy-Pol buy in order to maximize its profits?

The production function is given by F(L) = . Suppose that the cost per unit of labor is $16 and the price of output is $16. How many units of labor will the firm hire?

The production function is given by f(x) = . If the price of the commodity produced is $60 per unit and the cost of the input is $20 per unit, how much profit will the firm make if it maximizes profits?

If the short-run marginal costs of producing a good are $20 for the first 400 units and $30 for each additional unit beyond 400, then in the short run, if the market price of output is $21, a profit-maximizing firm will

A fixed factor is a factor of production that is used in fixed proportion to the level of output.

A firm produces one output with one input and has decreasing returns to scale. The price that it pays per unit of input and the price it gets per unit of output are independent of the amount that this firm buys or sells. If the government taxes its net profits at some percentage rate and subsidizes its inputs at the same percentage rate, the firm's profit-maximizing output will not change.

Philip owns and operates a gas station. Philip works 40 hours a week managing the station but doesn't draw a salary. He could earn $800 a week doing the same work for Terrance. The station owes the bank $100,000 and Philip has invested $100,000 of his own money. If Philip's accounting profits are $1,000 per week while the interest on his bank debt is $300 per week, the business's economic profits are