Question: Suppose a firm produces two goods with the following cost function:

C(y1, y2) = (y2^2)/2 + (y1^2)/2 + y2 + y1 + 8 if y1>0 or y2>0

C(y1,y2) = 0 if y1 = y2 = 0

1. Find the supply functions for the two goods and the associated profit function for each
   relevant price ranges. Hint: Remember two things: (i) the firm does not supply a
   negative quantity of a good; and (ii) the firm’s maximized profit cannot be negative
   (i.e., Profit Function=Pi(0) = 0).
2. Derive the supply functions by using Hotelling’s Lemma.
3. Find and illustrate the set of prices that generate zero profit and the set of prices that

generate profit equal to one.

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Solution: The downloadable solution consists of 3 pages
Deliverable: Word Document