Consider the production function Y=A K0.5 L0.5. Suppose that A=L=1, the interest rate is r=0.1 and the depreciation rate is d=0.1. Also assume that the price of capital is pk=1 and there is a tax of 20% on revenues. What is the optimal stock of capital to use in production?

A.

2.00

B.

4.00

C.

1.41

D.

6.25