768933-9-3E AID: 261991 | 05/06/2021

Consider the firm’s production function,

1 1
y  x1 4 x2 4

and prices of input are w1  1 and w2  2

(a)

The objective is find the factor demands the optional factor quantities are found at
w1
marginal rate of technical substitution (MARTS) that is nothing but price ratio w2
m arg inal product of x1
MRTS = m arg inal productof x2
Mp  x1 

Mp  x2 
Now,
dy
Mp  x1 
= dx1


d
dx1
1 1

x1 4 x2 4 
1 3 1
 x1 4 x2 4
4
And,
 dy 
Mp  x2    
 dx2 

d
dx2
1
 1
x1 4 x2 4 
1 1 3
 x1 4 x2 4
4
Therefore,
Mp  x1 

Mp  x2 
MARTS
1 3 4 14
x1 x2
 4
1 1 4 3 4
x1 x2
4
x
 2
x1
Hence optimality condition becomes,
x2 w1

x1 w2
1

2
x1  2  x2
Substitute this value in production function them,
1 1
y   2 x2  4
x2 4

1 1
y  2 4 x2 2
x2  y 2 1/2
2
Therefore,
x1  y   2 y 2
y2
x2  y  
And 2
Hence proved.

(b)

C  y   w1 x1  w2 x2
Total cost,
 2 2 y2  2 2 y2
1 1

 2 2 y2  2 2 y2
1 1

 2 2 y2
3

 2 2 y2
Hence Proved.

(C)

Supply curve is nothing but a marginal cost curre.

dc  y 
p
Supply curve dy
d 32 2
p 2 y
= dy
 2 2 2y
3

 2 2 y  p 
5

p
 y  p   5
22
Hence Proved.