Consider a firm with the following production technology q = k0.5l0.5. The market price of the firm’s product is 10, and the rental rates of capital and wage rate for labor are given, respectively, by 2 and 3.
(a) Draw the isoquant for output equal to 2.
(b) Draw the production function for K = 4
(c) Find the rate of technical substitution, MRTS. How do you interpret this number?
(d) Find the profit maximizing level of labor when K = 4.
(e) If wage rate goes up to 3, what is the new level of profit maximizing labor?
(f) Find the profit maximizing level
