Suppose a firm has a production function q = f(L, K) =2L + 4K, and the factor prices are w = $2 and r = $2. What is the minimum cost at which the firm is able to produce 20 units of output?
a. $10 b. $30 c. $45 d. $100 e. $50
please explain why
The production function is substitute production function, where the only input used with highest per input per dollar output is higher
MPL=dq/dL=2 and MPK=dq/dK=4 .......... first partial derivative of production function to find MP.
the per input-output is higher from K; it means the firm will use only capital
using the production function
the firm will use 5 units of capital to produce 20 units
the cost =K*r=5*2=$10
the cost of 20 units of production is $10
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