Rippin’ Good Cookies uses two inputs to produce cookies according to a production function given by f(x1, x2) = 3x1 + √ x2. Cookies sell at $16 per crate. Input 1 costs $3 per unit and input 2 costs $2.
1. If input 1 is fixed at x1 = 1, find the profit-maximizing level of x2.
2. Suppose Rippin’ Good Cookies is free to vary its usage of all inputs. Does the firm need to change its usage of x1 to maximize profit? Explain your answer by writing down a mathematical relationship using p and w1 to characterize the effect of varying x1 on the firm’s profits.
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Rippin’ Good Cookies uses two inputs to produce cookies according to a production function given by...
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