Compute the cost minimizing combination of labor

Reference no: EM13225046

Suppose technology for producing basketballs can be described by Q = 2K1/2L1/2. Suppose the wage rate = $10/hr and the rental rate of capital is $20 per hour.

1) What is the MRTSLK if K = 25 and L = 100?

2) Suppose that firm wishes to make produce 100 basketballs every hour. Compute the cost minimizing combination of labor and capital the firm should use. Compute the cost of making 100 basketballs. Graphically illustrate your answer

3) Suppose that the firm wishes to increase production of basketballs to 150 per hour, but using the same amount of Capital you computed in (b) above. How much labor does it need to use? What will be cost of making 150 basketballs? Will this be considered a short run cost or a long run cost? Illustrate on same graph above, and briefly explain.

Reference no: EM13225046

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