Answer to Question #70788 in Microeconomics for Steve

Question

The production of widgets requires two inputs. Capital (K) Labor (L). The costs of wage and interest are $2 and $5 respectfully. It is given that the Long Run production function is: Q = 2KL, with MPL = 2K, and MPK - 2L

a) It is known that cost minimizing level of production is an interior solution for a total cost of $500, Solve the equilibrium values of K*, L*, and Q*.

b) Suggest any combination of K and L that will achieve technical efficiency, but not economic efficiency.

c) Suggest a combination that will achieve economic efficiency