Question

Question 7 rding to the production function: uses labor and machines to produce output according to the where Lis ALK) = 41/212, ere is the number of units of labor used and K is the amount of capita or is $40 per unit and the cost of employing capital is $10 per unit. mount of capital employed. The cost (0): On the graph below, draw an isocost line for this firm that includes combin capital and labor that cost $400 and another isocost line showing combinations that cos Place L on the horizontal axis and K on the vertical axis. rm that includes combinations of combinations that cost $200. DI

Answer 1

(i) The iso-cost line has been drawn for the cost of $400 and $200 respectively.

(ii) The optimum level of capital and labor is at point where marginal rate of technical substitution is equal to the slope of the iso-cost line.

(iii) The isoquant for an output level of 40 has been drawn as follows:

(iv) The optimum level of labor and capital can be computed by substituting K=4L in an
FIL,K)-4L W= 40 offabor and ate where w and waye capital sespectiuely are C 8oastline fos cast 400 40L ok 400 lok 400 - 40L k 40-4L whun L K40 L2, K:3 6 L3 28 40+ l40) 36 2,36) 28 13,28) Y 2 3 L The above hause e boesands the lo-cast line at dffeant level of cabital and labou hng400

s0-ct ine har 200 4-0L 1oK - 20 0 10k 200 - 4 ol k 20-4L L = 2, 12 16 (212) 2 3,8) 2. 3 The above ue represents the so cost line For differert Lormbinahiong of labos and Copial far cast 200 MRTS lope of l20-1astline MPL 40 MPL 40 Amourt of E 4L 4 Capifal it wwitd use peta

Lii3ouant for an output of 4o 421 40 4v 4 L12 when Lこしレニ100 しこ2 k= k- 3 3 33 L 3 (ら100) 2 Jv) 3, 33-33 SD 3.33 2 3 obove hgue epreserds output of 4o The goquart fol foo m paut l) )ヒ:4L 4 Lh40 4 (4L JL' 240

Substiheting eu at'on 0 in use get k20 Amount of labous and amount of Capital and 20 ses pe cdiey are
isoquant equation.