Determine the cost minimizing combination of labor and capital if the firm decides to adopt production method 1. (b) Determine the cost minimizing combination of labor and capital if the firm decides to adopt production method 2. (c) Based on your solution in part (a) and (b), which production method would you recommend to the firm? Support your recommendation with calculations.
Q). Shown below are two alternative Cobb-Douglas production functions where Q is output per day, L is labor hours per day, and K is machine hours per day.
Q = 2LK Production Method 1
Q = 10(L1/2K1/2) Production Method 2
A firm must adopt one of the two production methods in order to produce 200 units of output per day while paying employees $12 per hour and renting machinery for $48 per hour.
(a) Determine the cost minimizing combination of labor and capital if the firm decides to adopt production method 1.
(b) Determine the cost minimizing combination of labor and capital if the firm decides to adopt production method 2.
(c) Based on your solution in part (a) and (b), which production method would you recommend to the firm? Support your recommendation with calculations.
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