A firm operates with the production function = 20 0.5 0.25 0.4 . The input prices per unit are RM20 for K, RM10 for L and RM5 for R. What is the cheapest way of producing 1,200 units of output?

1 Set up the cost function.(1m)

2 Set up the constraint function. (1m)

3 Set up the Lagrangian equation. (1m)

4 Calculate K, L and R. (10m)

5 What is the minimum cost?(1m)

6 Explain the effect of a 1-unit increase in output. (1m)