Prot maximization

The production function is

q = 100K 0:2 L0:2
and the price of the qood is $100 per unit. Input prices are:
w
r

=
=

$8
$2

Find the optimal levels of K and L and the prot.

The rms problem is
max 100K 0:2 L0:2

8L

2K

the rst order conditions are

20K 0:2 L 0:8
20K 0:8 L0:2

= 8
= 2

(1)

then
L
K
K

0:25

4L

Plugging (2) into (1)

20(4L)0:2 L

0:8

L0:6
L
K

8
20 40:2
=
8
= 7:31
= 29:24

therefore, the output is

q

0:2

= 100 (7:31) (29:24)0:2 = 292:4

= 292:4 8 7:31 2 29:24 = $175:44

(2)