Question
Suppose that a firm's production function is: q=10L0.5K0.5. Its marginal product functions are: MPL=5K0.5/L0.5=0.5q/L and MPK=5L0.5/K0.5=0.5q/K. The cost of a unit of labor, w, is
Suppose that a firm's production function is:
q=10L0.5K0.5.
Its marginal product functions are:
MPL=5K0.5/L0.5=0.5q/L |
and |
MPK=5L0.5/K0.5=0.5q/K. |
The cost of a unit of labor, w, is $80 and the cost of a unit of capital, r, is $20. Isoquants for output of 140 and 280 are illustrated in the figure to the right.
Part 2 Initially, the firm is producing 140 units of output and has determined that the cost-minimizing quantities of labor and capital are 7 and 28, respectively.
Part 3 Suppose now that the firm wants to increase output to 280 units. If capital is fixed in the short run, how much labor will the firm require?
Part 4The firm will now require enter your response here
units of labor. (Enter your response rounded to two decimal places.)
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