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In: Economics

12. Suppose that a firm’s production function is given by Q = K0.75L0.25, the wage rate...

12. Suppose that a firm’s production function is given by Q = K0.75L0.25, the wage rate is w = $20 per unit of labor and the rental rate is r = $100 per unit of capital.

  1. What is the marginal rate of technical substitution between labor and capital, ????'( (where labor is graphed on the x-axis and capital is on the y-axis)?

  2. If the firm produces 1000 units of output by using 1000 units of labor and 1000 units of capital, how much is the firm spending in total? Is it minimizing its cost of producing 1000 units? If not, explain in general terms how the firm should adjust.

  3. What is the cost-minimizing input combination for the firm to produce 1000 units? What is the cost of this input bundle? (Round your answer to two decimal places.)

  4. Suppose the firm wants to produce 1000 units of output, and its capital level is fixed at K = 500 in the short run. How many units of L should the firm use? What is the firm’s total cost of producing the 1000 units of output?

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