Question: Suppose input prices are w = 4, and r = 1, and q = 4K0.5L0.5. a) Calculate the marginal rate of technical substitution. What does

Suppose input prices are w = 4, and r = 1, and q = 4K0.5L0.5.

a) Calculate the marginal rate of technical substitution. What does the value imply? (4 marks)

b) Find the least cost input combination required to produce 40 units of output. What is the

total cost for production of this output level? (4 marks)

c) Redo part (b) for 50 units of output. What is the total cost this time? (2 marks)

d) Suppose instead that capital was fixed at 16 units. What would be the implications for

labour usage and total cost? Is this consistent with what the theory of cost predicts? (4

marks)

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