Technical substitution

by | Jul 27, 2021 | Homework Help

Consider a firm with the following production technology q = k0.5l0.5. The market price of the firm’s product is 10, and the rental rates of capital and wage rate for labor are given, respectively, by 2 and 3. 

(a) Draw the isoquant for output equal to 2. 

(b) Draw the production function for K = 4 

(c) Find the rate of technical substitution, MRTS. How do you interpret this number?

(d) Find the profit maximizing level of labor when K = 4. 

(e) If wage rate goes up to 3, what is the new level of profit maximizing labor? (f) Find the profit maximizing level

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