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(Solution document) I do not understand how to solve this problem A firm has two variable factors and a production function y=f(x 1 ,x 2 )=(x 1 +4x 2 ) 1/2 .


I do not understand how to solve this problem


A firm has two variable factors and a production function y=f(x1,x2)=(x1+4x2)1/2. The price of output good is $4 and the price of factor 1 is $1. Suppose that the price of factor 2 increases from $3 to $6. What happens to the profit maximizing output?


a)output decreases by 15/9

b)output decreases by 10/3

c)output decreases by 2/3

d)output increases by 2/9

e)output increases by 2

 







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