Suppose a Cobb-Douglas Production function is given by the following: P(L, K) = 70L0.6 K0.4 where L is units of labor, K is units of capital, and P(L, K) is total units that can be produced with this labor/capital combination. Suppose each unit of labor costs $200 and each unit of capital costs $600. Further suppose a total of $90,000 is available to be invested in labor and capital (combined). A) How many units of labor and capital should be "purchased" to maximize production subject to your budgetary constraint? Units of labor, L = Units of capital, K %3D B) What is the maximum number of units of production under the given budgetary conditions? (Round your answer to the nearest whole unit.) Max production units %3D

Exploring Economics
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ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter11: The Firm: Production And Costs
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Suppose a Cobb-Douglas Production function is
given by the following:
P(L, K) = 70L0.6 K0.4
where L is units of labor, K is units of capital, and
P(L, K) is total units that can be produced with
this labor/capital combination. Suppose each unit
of labor costs $200 and each unit of capital costs
$600. Further suppose a total of $90,000 is
available to be invested in labor and capital
(combined).
A) How many units of labor and capital should be
"purchased" to maximize production subject to
your budgetary constraint?
Units of labor, L =
Units of capital, K =
B) What is the maximum number of units of
production under the given budgetary conditions?
(Round your answer to the nearest whole unit.)
Max production =
units
Transcribed Image Text:Suppose a Cobb-Douglas Production function is given by the following: P(L, K) = 70L0.6 K0.4 where L is units of labor, K is units of capital, and P(L, K) is total units that can be produced with this labor/capital combination. Suppose each unit of labor costs $200 and each unit of capital costs $600. Further suppose a total of $90,000 is available to be invested in labor and capital (combined). A) How many units of labor and capital should be "purchased" to maximize production subject to your budgetary constraint? Units of labor, L = Units of capital, K = B) What is the maximum number of units of production under the given budgetary conditions? (Round your answer to the nearest whole unit.) Max production = units
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