Question
6. Creative Dangles is an earring design and manufacturing company. The production function for earrings is f(K, L) = 25KL. Workers are paid $8 per
6. Creative Dangles is an earring design and manufacturing company. The production function for earrings is f(K, L) = 25KL. Workers are paid $8 per hour, and capital rents for $8 per hour.
(a) Determine the cost-minimizing capital-labor ratio at this firm.
(b) How much does it cost to produce 10,000 pairs of earrings?
(c) Suppose the rental cost of equipment decreases to $6 per hour. What is the new cost-minimizing capital-labor ratio?
(d) After the price of capital falls to $6, suppose the firm finds it profit maximizing to produce 10,800 pairs of earrings. Find the
firm's optimal level of capital and labor to use, and draw a graph showing the firm's isoquant and isoexpenditure curves at this
level of production.
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