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1. A firm’s production function is given by ? = 5? ? where L is the...

1. A firm’s production function is given by ? = 5? ? where L is the quantity of labour employed and K is the quantity of capital employed. The price of labour is €5 and the price of capital is €10.

a. If the producer’s costs are constrained to €600 find the maximum level of production of the firm.

b. If the cost constraint is reduced to €300, what effect will this have on the optimal level of production?

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