7.14. A cost-minimizing firms production function is given by Q ! LK, where MPL ! K and...
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7.14. A cost-minimizing firm’s production function is given by Q ! LK, where MPL ! K and MPK ! L. The price of labor services is w and the price of capital services is r. Suppose you know that when w ! $4 and r ! $2, the firm’s total cost is $160. You are also told that when input prices change such that the wage rate is 8 times the rental rate, the firm adjusts its input combination but leaves total output unchanged. What would the cost-minimizing input combination be after the price changes?
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