Consider a firm that has production function Q = 5 K.5 L.4 in the short-run and the long-run. Capital (K) is fixed in the short-run and flexible in the long-run. The firm faces input prices of W = 10, and R = 15. The firm can produce non-integer units of output and employ non-integer units of capital and labor.

a) What are the profits of this firm in the long-run if the price of output is $10/unit? 10 points = Calculation of profits 5 points = LRMC and LRAC 15 points = Long-run Total Cost

b) The firm is considering investing in a new technology that results in a production function of Q = 6 K.5 L.4The cost of the technology is $5000 (for each period of production that the firm gets output according to the production function above). The firm will adopt the new technology if the increase in profits is greater than the cost of the technology. Should the firm adopt the technology for the long-run production? All points awarded based on comparison of increase in profits and cost. [Note: There is no short-run for this problem]