Q=2K0.2L0.6............(1)
Wage w = Php 240
rent = Php 4
Budegt = 16000
Budegt line
wL+rK=budegt
Putting values
240L+4K=16000.......(2)
Slope of the isocost line =−4240
Marginal product of labour MPL=2(0.6)K0.2L−0.4
Marginal product of labour MPK=2(0.2)K−0.8L0.6
Slope of the isoquants =−MRTS=MPK−MPL
MRTS=2(0.2)K−0.8L0.6−2(0.6)K0.2L−0.4=−L3K
Condition of optimality
The slope of isoquants = slope of the isocost line
−L3K=−4240L3K=60K=20L
Putting value of K in isocost equation
240L+4(20L)=16000
i.e.320L=16000
i.e.L=50
So K=20(50)=1000
If K = 1000 and L =50, then we get maximum output.
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