Question

The production function is Y=K0.5L0.5 where K is capital, L is labor and Y is output....

The production function is Y=K0.5L0.5 where K is capital, L is labor and Y is output. The price of L is 1 and the price of K is 2.

a) Find the optimal levels of K and L that should be employed to produce 100 units of output. What is

the cost of producing this level of output?

b) Will the optimal capital-labor ratio change if the price of labor goes up to 2 and the price of K goes

up to 4? Why or why not? Will you still use the same amount of K and L to produce 100 Y?

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