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Unformatted text preview: function has constant returns to scale. 3) a) Since 9 K , we get 45 9 18 L which implies that L = 36/18 = 2. Therefore the firm’s total cost with this input combination is 4(2) + 5(9) = $53. b) If the firm could operate optimally, it would choose labor and capital to satisfy the tangency condition: 5 4 1 2 2 L K , implying that . 4 8 10 L K Also, . 45 2 K KL Combining these two conditions, 18 K = 4.24 and L = 4.8. Now the firm’s expenditure would be 4(4.24) + 5(4.8) = $41 approximately. Therefore the firm loses about $12 because of its constraint on capital....
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 Spring '11
 Sheng
 Economics, Microeconomics, $53, $12, total product, $41

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