Answer to Question #228244 in Economics of Enterprise for Aselef

Question

If a firm is producing in the long run using capital and labor inputs, how the least cost combination of the inputs will be determined? Show graphically and mathematically

Answer 1

i) This can be determined by determining the production cost of the farm.

ii) Determining the cost of capital per day and the cost of labour per day.

iii) Computing the marginal product of capital as;

$MPK =\frac{dQ}{dK}$

Computing the marginal product of labour as;

$MPL =\frac{dQ}{dL}$

Finally to minimize cost we have to find the marginal rate of technical substitution as; $=\frac{MPL}{MPK}$

and then equate it to the wage rate.