Problem 2
Assume our production function is given by
q = EK^2
a) Assume p = 80. Define the profit function.
b) In the short-run, capital is fixed at 80 (i.e., K = 80). Based on that, what is the optimal level of employment? What is the firm's profit at this level?
c) Now assume that the firm is in the long-run and wants to produce 400 units. Define the cost minimization problem.
d) What is the optimal consumption of capital and employment when q = 400? What is the firm's cost at this level of production?