A firm has the following production function
Q = 2(XY)^0.5
Where, X is maize and Y is rice. The cost of maize is K10 and the cost of rice Is K40. The firm has a budget of K80 to spend on the two goods.
i. Formulate the firms’ optimization problem.
ii. Compute the optimal input combination of good X and Y.
iii. What level of output is associated with the optimal input combination?
iv. What is the impact of a K1 increase in the budget?