Question: Firm A operates in competitive markets. It uses a single input x to produce the output y. The technology of this firm can be described

Firm A operates in competitive markets. It uses a single input x to produce the output y. The technology of this firm can be described in the following the production function: =² for x between 0 and 3 and =2+3 for x greater than 3. The price of the output y is $2 and the price of the input x is $5.

Now suppose that the price of the output y has decreased to $1. And the price of the input x is still $5.

Write down firm A's profit function. Given the new prices of input and output, what is the profit-maximizing amount of input and what is the profit-maximizing amount of output? Draw a graph of the production function and isoprofit lines to illustrate this optimum. How much profit does firm A make at the optimum?

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