Chapter 12.9, Problem 53E

Production functions Economists model the output of manufacturing systems using production functions that have many of the same properties as utility functions. The family of Cobb-Douglas production functions has the form P = f(K, L) = CK^a L^1–a, where K represents capital, L represents labor, and C and a are positive real numbers with 0 < a < 1. If the cost of capital is p dollars per unit, the cost of labor is q dollars per unit, and the total available budget is B, then the constraint takes the form pK + qL = B. Find the values of K and L that maximize the following production functions subject to the given constraint, assuming K ≥ 0 and L ≥ 0.

53.    P = f(K, L) = K^1/2 L^1/2 for 20K + 30L = 300