Question: 1. Output y is produced using this function y = K + L 2 , K,L,y 0 where L is labour and K is capital

1. Output y is produced using this function

y =

K + L 2

, K,L,y 0

where L is labour and K is capital

(a) Show using a graphical method how a change in the marginal rate of technical substitution of L and K from MRTSA LK to MRTSB LK (where MRTSA LK > MRTSB LK) would change the optimum level of K and L used (b) What is the level of K and L when price of L (wL) is $2, MRTSLK = 2 and the rm aimed at producing 20 units of output with a maximum total cost of $40

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