1) Suppose that a firm’s production function is q=10L^0.25 K^0.75. The cost of a unit of...

1) Suppose that a firm’s production function is q=10L^0.25 K^0.75. The cost of a unit of labor is $30 and the cost of a unit of capital is $90. a. The firm is currently producing 120 units of output. Derive the cost-minimizing quantities of labor and capital (i.e. in the long run). What is the total cost?

b. The firm now wants to increase output to 160 units. If capital is fixed at the level you found in part a) (i.e. in the short run), how much labor will the firm require? What is the firm’s new total cost?

What is the cost-minimizing level of capital and labor in the long run if the firm wants to produce 160 units of output? What is the total cost now?

Expert Solution

Rahul Sunny answered 7 months ago

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