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For annual output Q, where Q=500L0.6K0.8 where L is labor measured in hours and K is capital measured in machine hours.

The marginal products areMPL=300L-0.4K0.8 andMPK=400L0.6K-0.2.

Wage=$15 per hour and capital = $50 per hour.

a) How much capital and labor should the firm employ given the $500,000 budget? Calculate the output.

b) If wage rises to $22.50, find the new optimal capital-labor ratio. Should the company increase or decrease the labor input under the new situation?

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019
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