1. Given the production function in equation (1), explain the CMP for a given plant. Clearly describe the goal, the choice variables, the exogenous variables, and the constraint. Describe the notable economic relationships that solve the CMP.

2. Given the production function in equation (1), suppose in the same industry and in the same year, you compare two plants. Each plant is attempting to produce the same output quota and each plant faces the same input prices. However, one plant is located in a city with a majority of college-educated workers. The other plant is located in a city with a minority of college-educated workers.

A. Using the CMP, which plant will have a lower total cost? Which plant will have a lower conditional input demand for at least one input?

B. If each firm can sell their output at the same price to consumers and each plant's output is fixed at the same output quota, then using the PMP which plant will have higher profit?

C. With many plants, industries, and years, what general and testable predictions emerge (i.e. what is the predicted relationship between the share of college-educated people and plant productivity, total cost, employment of inputs, and profit)?

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