Question: 1. A firm selling in a perfectly competitive market where the ruling price is £40 can buy inputs K and L at prices per unit of £20 and £6 respectively. If it operates with the production function Q = 21K0.4L0.2, what is the maximum profit it can make?
2. A firm faces the production function Q = 2.4K0.6L0.2, where K costs £25 per unit and L costs £9 per unit, and sells Q at a fixed price of £82 per unit. Explain why it cannot make a profit of more than £20,000, no matter how efficiently it plans its input mix.