Question 40Givens:minw * L+r * KL>0, K >0s.t.• The marginal product of labor: MPL = .5 * *• The marginal product of capital: MPK = .5*• Baseline Scenario: w = $10, r = $10 and go = 200• New Scenario: w = $10, r = $2.50 and go = 200Equation Description: A firm is attempting to minimize total cost subject to sufficiently employing units of labor and units of capital to produce an output level at least as large as a specified output quota. Total cost equals the cost to employing units of laborplus the cost to employing units of capital. A firm's production function is the product of two terms: the first term is units of capital raised to the .5 power; and, the second term is units of labor raised to the .5 power. The marginal product of labor equals theproduct of three terms: the first term is .5; the second term is units of capital raised to the .5 power; the third tem is units of labor raised to the -.5 power. The marginal product of capital equals the product of three terms: the first term is .5; the second term isunits of labor raised to the .5 power; the third term is units of capital raised to the -5 power. As a baseline scenario: The wage rate is $10 per unit of labor; the rental rate is $10 per unit of capital; and, the output quota is 200 units. As a new scenario: The wagerate is $10 per unit of labor; the rental rate is $2.50 per unit of capital; and, the output quota is 200 units.Question: Comparing the baseline scenario to the new scenario, how did the new event affect total cost?O Cannot be determined.O Total cost remained unchanged.O Total cost decreased.O Total cost increased.

A production function illustrates the relationship between the output and the inputs used. It…

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Givens: w * L+r+K min L>0, K > 0 s.t. %

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