Given
Wage rate=w=$40
Rental rate=r=$120
Output=300 units
For cost minimization, we know that
MPL/MPK=w/r
(0.25K0.75/L0.75)/(0.75L0.25/K0.25)=40/120
K/3L=1/3
K=L
We know Q=K0.75L0.25
Put Q=300, L=K
300=K0.75*K0.25=K
K*=300
L*=K*=300
Total Cost=wK*+rK*=40*300+120*300 =$48000
How many units of labor minimize cost?
Correct option is
300
How many units of capital minimize cost?
Correct option is
300
What is minimized total cost?
Correct option is
$48000
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