Firm "Happy Capitalist" has following production function: f(K, L) = 2*k0.2L0.8. Furthermore, it is known that cost of capital (r) is equal to 2 and cost of labour (w) is 4. Having said that, capitalist wishes to maintain an output of 250 at lowest possible cost. We ask: a) Solve cost minimisation. Also, is it a corner solution or an interior solution; b) Graph previous result: isoquant and isocost of production; c) Determine average productivity of each factor; d) Is it a function with returns to scale of what type, increasing, decreasing or constant? e) Calculate elasticity of input-output
Firm "Happy Capitalist" has following production function: f(K, L) = 2*k0.2L0.8. Furthermore, it is known that cost of capital (r) is equal to 2 and cost of labour (w) is 4. Having said that, capitalist wishes to maintain an output of 250 at lowest possible cost. We ask: a) Solve cost minimisation. Also, is it a corner solution or an interior solution; b) Graph previous result: isoquant and isocost of production; c) Determine average productivity of each factor; d) Is it a function with returns to scale of what type, increasing, decreasing or constant? e) Calculate elasticity of input-output
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Firm "Happy Capitalist" has following production function: f(K, L) = 2*k0.2L0.8.
Furthermore, it is known that cost of capital (r) is equal to 2 and cost of labour (w) is 4. Having said that, capitalist wishes to maintain an output of 250 at lowest possible cost. We ask: a) Solve cost minimisation. Also, is it a corner solution or an interior solution; b) Graph previous result: isoquant and isocost of production; c) Determine average productivity of each factor; d) Is it a function with returns to scale of what type, increasing, decreasing or constant? e) Calculate elasticity of input-output
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