ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Suppose that a firm has production function f(K, L) = K2a + Lª where a > 1. Assume that PK = PL
where pk is the price of capital per unit and på is the price of labour per unit. If the firm is
producing at an optimal point then which of the following can we conclude?
The firm will use equal quantities of capital and labour.
The firm will use twice as much capital as labour.
O The marginal rate of technical substitution will equal the price ratio.
O The firm will only use capital in production.
O More than one of the above.
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Transcribed Image Text:Suppose that a firm has production function f(K, L) = K2a + Lª where a > 1. Assume that PK = PL where pk is the price of capital per unit and på is the price of labour per unit. If the firm is producing at an optimal point then which of the following can we conclude? The firm will use equal quantities of capital and labour. The firm will use twice as much capital as labour. O The marginal rate of technical substitution will equal the price ratio. O The firm will only use capital in production. O More than one of the above.
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