Assume a firm's production function is? = K 1 2? 1 2 where Q, L and K are defined. How much labor and capital would be purchased if it seeks to produce 100 units and labor costs $20 per unit and capital each cost $5 per unit?

Question

Trevon

Business

1 June, 12:51

Assume a firm's production function is? = K 1 2? 1 2 where Q, L and K are defined. How much labor and capital would be purchased if it seeks to produce 100 units and labor costs $20 per unit and capital each cost $5 per unit?

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Answers (1)

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Nicky · Answer 1

200 labor

and 50 units of capital

Explanation:

The formula given is Q = K^ (1/2) L^ (1/2)

Now, considering we want Q = 100

and the cost formula 20K + 5L

we should look to minimize the cost using excel solver tool

1 2 3 4

A L 200 5 1000 (A2*A3)

B K 50 20 1000 (B2*B3)

C 100 2000 (A4 + B4)

C2 = power (a2; 1/2) * power (b2; 1/2)

we want to minimize the cost formula (C4)

considering the restrain that output should be 100

and that quantity of labor and kapital should be integer.