simplifying production functions

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S

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Mar 10, 2016, 11:54:50 PM3/10/16

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For #4 on the Final Free Response practice, how do I know that the revenue is $12 with the given information?

Do I just plug in the price (p=6) and L=0 into the production function?

Screen Shot 2016-03-10 at 8.50.39 PM.png

Taylor Stoltzfus

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Mar 11, 2016, 12:27:27 AM3/11/16

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Hi S,

Notice that when L is held constant (L=0) every additional unit of capital produces 2 output, which can be sold for 6 dollars each. This is where i get the $12 of revenue. Since K has CRTS and is in no way affected by the amount of L, the revenue produced by an additional unit of K is $12 for all values.