ECON2009 Production Theory

4. Production Theory (15 points) Capital Asphalt is preparing to repair parking lot of the city airport's Park 8: Fly. Based on past experience, it has been found that output can be described by: Q = 20K0'75L0'25, where Q = square footage of pavement, K = units of capital, and L = units of labor. The company can hire labor at $50 per hour, and the cost of capital is $600 per unit. Capacity limitations require that Capital Asphalt aCCeptS no more than $120,000 worth of paving this season. a. (3 points) Determine the optimal input combination for the firm. b. (5 points) Calculate the maximum output the firm can produce given its optimal inputs. c. (7 points) Now suppose, another construction firm named Construction.co faces the production function given by: Q = 2K + 4L. If this firm also hires labor and capital from the same market at the same prices and has a maximum of $100,000 to spend on inputs of production, what is the maximum output this firm can produce