1. The production function of a firm is q = f (K, L) = (210.5 + 10.5)1.5. The cost of a unit of labour L
1. The production function of a firm is q = f (K, L) = (210.5 + 10.5)1.5. The cost of a unit of labour L is w, the cost of a unit of capital K is r. a. What are the global returns to scale of this production function? b. What is the cost-minimizing capital-labour ratio K/L as a function of w/r? c. If the cost of labour went up by 20% while the cost of capital remains the same, by what percentage would the capital-labour ratio go up? d. What are the cost-minimizing quantities of capital and labour that the firm will use to produce a given amount of output q? e. Show that the cost function is wr C(w, r, q) = 93 . r + 4w
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