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  • May 29, 2008, 04:04 AM
    avenger9000
    Cost minimisation
    Ok I am stuck on this I have tried to do it but am stuck

    A firm has production function Q = (L^0.5 + K^0.5)^2



    if it wishes to produce 121,000 units of output, find the cost minimising combination of labour and capital. The price of Labour is 10 and the price of capital is 1

    Here's what I have done so far:


    The cost minimising condition occurs where the marginal rate of technical substitution equals the ratio of the prices of inputs

    so:

    Q = L + 2(KL)^0.5 + K

    Marginal product of Labour = 1 + (K/L)^0.5
    Marginal product of Capital = 1 + (L/K)^0.5

    so

    1 +(K/L)^0.5 / 1 + (L/K)^0.5 = 10

    and I am stuck here not sure what to do next can anyone point me in the right direction thanks

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