Question: Two firms 1 and 2 are using both capital ( K ) and labour ( L ) to produce identical products. They have different technologies

Two firms 1 and 2 are using both capital (K) and labour (L) to produce identical products. They have different technologies in their productions, which are described as the following production functions:

f1(K1,L1) =aK1+bL1;

f2(K2,L2) =min{aK2,bL2},

wherea,bare two positive constants and the subscripts 1 and 2 represent different firms, respectively. The market prices for capital and labour arerandw.

(a) What are the cost-minimizing values ofK1andL1if Firm 1 produces a given numberq1? Show your work and illustrate your answer using an appropriate diagram with necessary details. Note that both explanations and a diagram are required.

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