Answer to Question #79600 in Macroeconomics for Kwasi Ameyaw

Question

A chocolate manufacturing company’s production function is Q = 5KL, where Q is output rate, L is the amount of labour it uses per period of time, and K is the amount of capital it uses per period of time. The price of labour is GH¢1.00 per unit of labour, and the price of capital is GH¢2.00 per unit of capital. The company hires you to determine which combination of inputs to use to produce 20 units of output per period.
a) Determine the combination of labour and capital that the company should hire in order to maximize profits.
b) Suppose that the price of labour increase to GH¢2.00 per unit. What effect will this have on output per unit of labour?
Is the company’s production subject to decreasing returns to scale? Why or why not?