Question

A firm’s production function is q = 2K^0.5+ 5L^0.5, where q is output per hour, K is the amount of capital used per hour and L is the amount of labour used per hour.

Capital costs r = $20 per hour and labour costs w = $100 per hour.

1. Determine whether or not capital and labour show diminishing returns.
2. Determine the number of units of capital and of labour, if the firm wants to produce 45 units per hour.

Answer 1