MATHEMATICAL ECONOMICS

List 2

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1. The production function of a firm is given by the formula: = 18 , where both
the inputs and the output are in tons. The prices of inputs are: = 4 zł/kg, = 20 zł/kg,
and the firm sells the product at the market price of 12 zł/kg.
a) Using the production function, calculate the maximal profit of this firm.
b) Derive the cost function, and apply the condition MC=P to find the maximal profit.
Compare the result with the one from point a).

2. A firm sells its product at the market price of 3 PLN/unit. Its production function is given
by the formula = √ + 6√ , where and are in kilograms and is the
production in units. Calculate the firm’s maximal profit in the long run, knowing that prices
of inputs equal = 10 PLN/unit, = 40 PLN/unit.

3. The production process in firm Y2 is best described by the Koopmans-Leontief production

function: = min 2.5 ; , where both the inputs and the output are in units. Firm has
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limited access to the materials used, and the monthly input of none of them can exceed
1000 units. Apart from the cost of materials, firm has a monthly fixed cost of 4000 euro.
Calculate the maximal monthly profit for Y2, knowing the prices of inputs ( = 140
euro/unit, = 90 euro/unit), and the price of the final product ( = 220 euro/unit) .

4. Firm TT uses labour (measured by the number of workers ), and capital (measured by
the number of machines ) to produce the offered service. The monthly production level (in
. .
units) is best characterized by the Cobb-Douglas function: =6 . Each worker costs
the firm 9000 zł/month, and the work of each machine costs 20000 zł/month. Calculate the
maximal monthly profit of TT, knowing that it sells its service at the price of 10000 zł. Due to
the limited availability of professional workers, TT can maximally hire 20 people monthly.
The maximal number of the machines, that firm could use, is 10.
5. The firm’s production function is given by the formula =3∙ √ + 2 ∙ √ , where both
output and inputs are in thousands of units. The prices of inputs equal = 5 PLN/unit,
= 14 PLN/unit, and the market price at which the firm sells its product is 20 PLN/unit.
The firm faces constraints on the levels of inputs it can use: ≤ , ≤ . Provide analysis
of the maximal profit, and the optimal values of inputs, depending on a, and b.

Additional exercises for own study from [Kuśmierczyk et al., 2018]: 100, 101, 103, 104.