A competitive firm produces its output according to the production function y = min{x^1/2, 10}.Let w be the price of the factor x, and let the price of output be $1.The demand for factor x, when the factor price is w, is A)x =min{w^1/2, 10} B)x = max{w^1/2/2, 100}. C)x =min{1/4w², 100}. D)x = 10 + x^1/2/2. E)None of the above.

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Quizplus · Accepted Answer

The firm will choose x to minimize cost while producing y = 10. The cost-minimizing x is found by setting x^1/2 = 10, giving x = 100. The demand for x is min{1/4w^2, 100} because the firm will use x = 100 if w is low enough, otherwise it will use less.

A Competitive Firm Produces Its Output According to the Production