2. Suppose that the firm has two possible activities to produce output. Activity a uses a1 units of good 1 and a2 units of good 2 to produce 1 unit of output. Activity b uses bl units of good 1 and b2 units of good2 to produce 1 unit of output. Factors can only be used in these fixed proportions. If the factor prices are (wl, w2), what are the demands for the two factors? What is the cost function for this technology? For what factor prices is the cost function not differentiable?
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