Question: Problem 2. Suppose that a firm's production function is q=KL. You are also given that MPL=K and MPK=L. The cost of a unit of labor

 Problem 2. Suppose that a firm's production function is q=KL. You

Problem 2. Suppose that a firm's production function is q=KL. You are also given that MPL=K and MPK=L. The cost of a unit of labor is $150 and the cost of a unit of capital is $50. 1. Does the production function represent constant, increasing, or decreasing returns to scale? Show calculations to prove your point. 2. A firm wants to produce 2,700 units of output in the long run. What must be true of the marginal products of the two inputs at the cost-minimizing combination of capital and labor? What must be true of the marginal rate of technical substitution between the two inputs? Calculate and show the cost-minimizing combination of capital and labor in a neatly drawn and fully-labeled isocost/isoquant diagram

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