question archive Assume that a firm produces a certain amount of a certain product (denoted by Q) with K units of capital and L units of labor
Assume that a firm produces a certain amount of a certain product (denoted by Q) with K units of capital and L units of labor
Subject:EconomicsPrice: Bought3
Assume that a firm produces a certain amount of a certain product (denoted by Q) with K units of capital and L units of labor. Thus, the production function is given by
Q = f(K, L) = (a . K-β + b. L-β)-1/β
Also assume that the firm's budget constraint is given by
R . K + W. L=S
Where R, W and S represent interest rate, wage rate, and available fund, respectively.
(1) Find the quantities of K and L that the firm must utilise, in order to maximise its output.
(2) Assuming a = 0.5, b = 0.5, β = 0.5, R = 0.1 (that is, 10 percent), W= $35, and S=$1000, find the values of K and L that maximise Q.
