1. Moonpie Ltd produces cupcakes. The production function is Q = 85K0.8 L 0.5 where Q is the output measured in cuttons, Lis the labour measured in work hours and K is the capital measured in machine hours. Wages are $20 per hour, machine charges are $30 per hour and the cost of production is $105,000. (a) Calculate the optimum combination of labour and capital. (b) If the wages per hour increases by 35 percent, calculate the new combination of inputs and changes in firm's output. (c) Based on your answers in (i) and (ii), show the optimum production points in a diagram