Compute the technical rate of substitution

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A firm uses capital (K) and labor (L) to produce output y. The production function is given by y = k^0.5 * L^0.5 . Both the wage of labor and the cost of using capital are equal to 1.

a) Compute the technical rate of substitution. Give a brief interpretation.

b) The firm minimizes the cost of production for any output level y. Give the two conditions that have to be satisfied for a cost minimum.

c) Show that the cost function for this firm is given by c( y) = 2y.

Reference no: EM132506328

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