A profit-maximizing firm produces one output, y, and uses one input, x, to produce it. The price per unit of the factor is denoted by w and the price of the output is denoted by p. You observe the firm's behavior over three periods and find the following:
Period y x w p
1 1 1 1 1
2 2.5 3 0.5 1
3 4 8 .25
a. Write an equation that gives the firm's profits, pi, as a function of the amount of input x it uses, the amount of output y it produces, the per-unit cost of the input w, and the price of output p.
b. With output on the vertical axis and input on the horizontal axis, draw an isoprofit line for each of the three periods. What are the equations for these lines?
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A profit-maximizing firm produces one output, y, and uses one input, x, to produce it. The price per...
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