Profit max & Cost minimisation (L12)

Question 1

profit

Answer 1

price of output good x output -(input good price x X1 + input 2 price x X2)

Question 2

when can you solve profit max

Answer 2

when constant returns to scale profit is 0
decreasing returns to scale
cost minimisation

Question 3

steps to solve cost function

Answer 3

TRS=-a/b x2/x1= -w1/w2
solve this and plug into y/output function
plug x1 and x2 values into cost function, multiply by the y value you get for both by putting it in front of the brackets

Question 4

perfect substitutes f(x1,x2)=Ax1+Bx2

Answer 4

x1=y/A of only x1 is used cost is w1/Ay
x2=y/B cost=w2/By when x2 is used

Question 5

TRS

Answer 5

MP1/MP2= -w1/w2