Firm cost-minimizing input combination to produce

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Reference no: EM131316131

A paint manufacturing company has a production function Q = K + √L. For this production 1 function MPK = 1 and MPL = 2√ . The firm faces a price of labor w that equals $1 per unit and a price of capital services r that equals $50 per unit.

a) Verify that the firm’s cost-minimizing input combination to produce Q = 10 involves no use of capital.

b) What must the price of capital fall to in order for the firm to use a positive amount of capital, keeping Q at 10 and w at 1?

c) Derive the input demand curves for L, as a function of the input prices w (price of labor) and r (price of capital).

Reference no: EM131316131

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