How much labor and capital will the firm employ

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Reference no: EM13213551

A contractor for the U.S. Defense Department produces airplanes from capital (K) and labor (L) by the production function: A = K times L 2 The marginal product of labor (MPL) = 2KL. The marginal product of capital (MPK) = L 2 . The Defense Department is ordering 125 airplanes.

a. How much labor and capital will the firm employ if labor costs twice that of capital? (Hint: Let w = $2 and r = $1. Use MPL/MPK = w/r to find L in terms of K. Then substitute this into the production function for A = 125.)

b. How much capital and labor will the firm use if capital costs twice that of labor?

Reference no: EM13213551

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