Acme Eggs produces eggs. Acme has estimated this production function for its eggs:  Q equals 10 L to the power of 0.5 end exponent K to the power of 0.5 end exponent The marginal product of labor is given by  M P subscript L equals 5 L to the power of negative 0.5 end exponent K to the power of 0.5 end exponentand the marginal product of capital is given by M P subscript K equals 5 L to the power of 0.5 end exponent K to the power of negative 0.5 end exponent where Q = output measured in eggs, L = labor measured in person hours, and K = capital measured in machine hours. Acme currently pays a wage of $15 per hour and considers the relevant rental price for capital to be $20 per hour.

a. Provide an expression for the firm’s isocost line associated with a total cost of $600 and calculate the slope of the isocost line (assuming labor is on the x-axis).

b. Determine the optimal capital-labor ratio that Acme should use in egg production.

c. Calculate the total output and the quantities of labor and capital that will be used if the firm spends $600 on production.

Answer rating: 100% (QA)

a Isocost line TC wL rK where TC 600 w15hr r20hr L un... View the full answer