2. (3 points) Economic theory tells us that production output is the result of the amount of labor and physical capital invested. This analysis produced a calculation that is still in use today, largely because of its accuracy. - The Cobb-Douglas production function reflects the relationships between its inputs namely physical capital and labor and the amount of output produced. It's a means for calculating the impact of changes in the inputs, the relevant efficiencies, and the yields of a production activity. Here's the basic form of the Cobb-Douglas production function: Q(L,K) = aL'K-b where Q(L, K) is the quantity produced from the inputs L and K; L is the amount of labour expended, which is typically expressed in hours; K represents the amount of physical capital input, such as the number of hours for a particular machine, operation, or perhaps factory; a represents the total factor productivity (TFP) that measures the change in output that isn't the result of the inputs. Typically, this change in TFP is the result of an improvement in efficiency or technology; b and 1 - b reflect the output elasticity of the inputs. Output elasticity is the change in the output that results from a change in either labor or physical capital. Show that for the Cobb-Douglas production function restricted to wL+rK = C, (known as the isocost line) where w> 0 and r> 0 are the costs of labour and capital, respectively, and C is the budget available, the maximum possible production is 1-b b Q 2 = a ( ) * ( = ') * c. C. r