A firm produces output according to a production function: Q = F(K,L) = min {2K,

Question

A firm produces output according to a production function: Q = F(K,L) = min {2K,2L}.

a. How much output is produced when K = 2 and L = 3?

b. If the wage rate is $40 per hour and the rental rate on capital is $20 per hour, what is the cost-minimizing input mix for producing 4 units of output?

Capital:

Labor:

c. How does your answer to part b change if the wage rate decreases to $20 per hour but the rental rate on capital remains at $20 per hour?

A. Capital and labor Increases

B. Capital decreases and labor increases

C. Capital increases and labor decreases.

D. It does not change

Explanation / Answer

a. Q = min(2K, 2L) = min(4,6) = 4 units

b. Capital: 2

Labor: 2

c. D. It does not change.

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