Let the demand for goods produced by firm i be Yi= a - b (Pi/P) and let the production costs be cWYi where a, b and c are constants and where W is the wage.
What is profit here? What is expression for Price, Pi? [Hint as given by Instructor: Take derivative of profits wrt Pi and set equal to 0].
What factors determine the price that is optimally set by the firm?
Suppose that the production function is Y=AN. What is c and what is equation of price level in this case?