A competitive software rm has a production functionf(x1;x2) = 2x1x2wherex2is the

number of computers andx1is number of workers employed. Let the workers' wage bew1= 8, the computer price isw2= 32;and output price bep= 8:Suppose that in the short run the rm can only vary the amount of workers it employs but not the number of computers and that

the latter is xed atx2= 4 in the short run.

(a) Derive the rm's short run conditional input demand for workers if the rm wants to

produceyunits of output. What is the rm's short run cost function for producing outputy? (b) What are the rm's xed costs, average variable costs, average costs and marginal costs

of producing outputy? Sketch the AC, AVC and MC curves on a graph.

(c) What is the rm's short run supply curve? What is the pro t maximizing amount of output that the rm will produce in the short run? At this output level how much pro ts/losses

does the rm make?