whereUdenotes unskilled labour andSdenotes skilled labour. AssumeU0 andS0.

LetwU= 6 andwS= 8 denote the prices of unskilled labour and skilled labour respectively.

1). LetQ0andC0respectively denote the value of output and total costs ob-

tained in part (a). The firm hires you as a consultant. They are not particularly interested

in cost-cutting but they are averse to cost-increase as well. Your task is to find out the max-

imum level of output (Q) that can be produced with a spending cap ofC0and recommend

the levels of unskilled (U) and skilled labour (S) necessary to produceQ. FindQ,U,

andS.