Question

1. Production function: Q= 2K^2L a. Find MRTSLK b. Interpret MRTS(LK) when capital is 12 and...

1. Production function: Q= 2K^2L

a. Find MRTSLK

b. Interpret MRTS(LK) when capital is 12 and labor is 2?

c. Is the firm able to produce more when making this substitution?

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Homework Answers

Answer #1

Q = 2K2L

(a)

MPL = Q/L = 2K2

MPK = Q/K = 2KL

MRTSLK = MPL/MPK = (2K2) / (2KL) = K / L

(b) When K = 12 and L = 2,

MRTSLK = 12/2 = 6

It means that in order to use 1 more unit of labor in production process, the firm has to give up 6 units of capital.

(c) While making this substitution firm is not able to produce more because MRTS is computed holding the output at a fixed level. This substitution is done by changing the capital-labor input combination while producing the same amount of output.

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