Explain in steps 3. An electronics plant's production function is Q = 5LK, where Q is its output rate, L is the amountof labor it uses per period of time and K is the amount of capital it uses per period of time. The Priceof labor is $1 per unit of labor and the price of capital is $2 per unit of capital.a) What is the optimal combination of inputs the plant should use to produce 1000 units of outputper period?b) Suppose that the price of labor increases to $2 per unit. What effect will this have on optimalL and K to produce Q=1000?c) Is this plant subject to decreasing returns to scale? Why or why not?

Given:- Here we have, Q=5LK, where labour = L=$1 per unit and capital = K=$2 per unit also Q=1000…

3. An electronics plant's production function is Q = 5LK, where Q is its output rate, L is the amount of labor it uses per period of time and K is the amount of capital it uses per period of time. The Price of labor is $1 per unit of labor and the price of capital is $2 per unit of capital.

3. An electronics plant's production function is Q = 5LK, where Q is its output rate, L is the amount of labor it uses per period of time and K is the amount of capital it uses per period of time. The Price of labor is $1 per unit of labor and the price of capital is $2 per unit of capital.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter9: Production Functions

Section: Chapter Questions

Problem 9.2P

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Question

Explain in steps

3. An electronics plant's production function is Q = 5LK, where Q is its output rate, L is the amount
of labor it uses per period of time and K is the amount of capital it uses per period of time. The Price
of labor is $1 per unit of labor and the price of capital is $2 per unit of capital.
a) What is the optimal combination of inputs the plant should use to produce 1000 units of output
per period?
b) Suppose that the price of labor increases to $2 per unit. What effect will this have on optimal
L and K to produce Q=1000?
c) Is this plant subject to decreasing returns to scale? Why or why not?

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