The Southern Mail produces local newspapers. The company can rent its equipment and hire workers at competitive rates. Equipment needed for this operation can be rented at R4 per hour, and labour can be hired at R3 per worker hour. The production function using available technology can be expressed as: Q = 2L0.5 K 0.5 [8] a) Determine the firm's optimal ratio of labour to capital. b) Determine the cost-minimizing level of capital and labour in the long run if the firm wants to produce 160 units. Calculate the cost. c) Graphically illustrate this using isoquant and isocost lines.
The Southern Mail produces local newspapers. The company can rent its equipment and hire workers at competitive rates. Equipment needed for this operation can be rented at R4 per hour, and labour can be hired at R3 per worker hour. The production function using available technology can be expressed as: Q = 2L0.5 K 0.5 [8] a) Determine the firm's optimal ratio of labour to capital. b) Determine the cost-minimizing level of capital and labour in the long run if the firm wants to produce 160 units. Calculate the cost. c) Graphically illustrate this using isoquant and isocost lines.
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.1P
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The Southern Mail produces local newspapers. The company can rent its equipment and
hire workers at competitive rates. Equipment needed for this operation can be rented at R4
per hour, and labour can be hired at R3 per worker hour. The production function using
available technology can be expressed as: Q = 2L0.5 K
0.5 [8]
a) Determine the firm's optimal ratio of labour to capital.
b) Determine the cost-minimizing level of capital and labour in the long run if the
firm wants to produce 160 units. Calculate the cost.
c) Graphically illustrate this using isoquant and isocost lines.
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