Answer to Question #280705 in Microeconomics for Rango

Question

Suppose a firm uses inputs of labour, L, and capital, K, to produce its output, Q, according to the production function Q = f (K,L) =K 1/4 L 1/2 . Labour is paid an hourly wage of w and the rental price of capital is r. The firm sells its output at a price of P per unit.

Determine the firm’s optimum levels of the two inputs

Answer 1

The firm’s optimum levels of the two inputs are such, for which:

$\frac {MPL} {w} = \frac {MPK}{r}$