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What is the optimanl level of inputs if the production function Q=2K+4L and W=25, r= 6,...

What is the optimanl level of inputs if the production function Q=2K+4L and W=25, r= 6, and the firm wants to produce 100 units of output.

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Answer #1

Production Function, Q = 2K + 4L

Marginal productivity of Labour, MPL (This indicates how much extra can be produced by an additional labour unit)

Similarly, marginal productivity of Capital, MPL

Wage, w = 25. Cost of capital, r =6

(This indicates how much output can be produced by a unit of money invested in labour)

We can see that a unit of money invested in capital can produce more output that a unit of money invested in labour.

Therefore, we need to invest in Capital alone to minimise the cost.

Therefore the optimal level of input = 50 K and 0 L.

The total cost incurred

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