How much labor and capital would the firm use to produce

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Reference no: EM133366717

Question: A firm uses labor and capital to produce output according to the production function Q(K, L) = 4K1/2L1/2

where L is the units of labor and K is units of capital. The cost of labor is w = $40 per unit and the cost of capital is r = $10 per unit.

(a) On a graph, draw an isocost line for this firm, showing combinations of capital and labor that cost $400 and another isocost line showing combinations that cost $200. What is the slope of these lines?

(b) Suppose the firm wants to produce its output in the cheapest possible way. Find the amount of capital per laborer (K/L) that the firm will use.

(d) How much capital and labor must the firm use to produce 40 units in the cheapest possible way?

(e) How much will the 40 units cost if the firm is cost minimizing?

(f) How much labor and capital would the firm use to produce Q units in the cheapest possible way?What are these demands for capital and labor called? How much would this cost?

Reference no: EM133366717

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