Question #2: Cost Minimization Problem
Nike produces its sneakers using labor (L) and capital (K). Nike has the following production function Q = 50K1/5L1/4. The wage rate (PL) is $2 and the price of capital (PK) is $5. Nike wants to produce 1000 sneakers at the lowest possible cost.
(a) Use the Lagrangian Method to find the cost-minimizing
quantity of capital and labor to produce 1000 sneakers? Round your
answers
(b) What is the total cost of producing 1000 sneakers?
(c) Suppose that the price of labor doubles to PL = $4. Assume all
other variables are held constant. Find the new cost-minimizing
quantity of capital and labor.
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