Question

A manufacturing company has a production function Q=KL + L. The firm faces a price of labor w that equals RM1 per unit and a price of capital services r that equals RM2 per unit.

1. Verify that the firm’s cost-minimising input combination to produce Q=100 involves no use of capital

Answer 1

$$Solution$$

$Q=KL+L\\ W(wage)=1\\ r(rent)=2$

$If\ a\ firm\ uses;\ \\ 100L\ and\ 0K\\ Total\ Cost\\ =100\times1\\ =100\\ Total Output=(0\times100)+100\\ =100$

Therefore, if the firm uses 1 capital unit or more than one capital unit, the total output will be more than 100 and the total cost will be more than 100, and the total cost will be above 100( which can be said not to be cost minimizing).