ST Company produces T-shirt. The production function is Q = 85K^0.8 L^0.6 where Q is the output measured in units, L is the labour measured in working hours and K is the capital measured in machine hours. Wages are RM20 per hour, machine charges are RM30 per hour and the cost of production is RM105,000.

1 Calculate the optimum combination of labour and capital. (3 marks)

2 If the wages per hour increases by 35 percent, calculate the new combination of inputs and changes in firm's output. (5 marks)

3 Based on your answers in (i) and (ii), show the optimum production points in a diagram.(2 marks)