The production function for superlite sailboats, Inc., is Q=20K^0.5 L^0.5 with marginal product functions MPk=10*L^0.5/K^0.5 and MPL=10*L^0.5/K^0.5.
a. If the price of capital is $5 per unit,determine the expansion path for the firm.
b. The firm currently is producing 200 units of output per period using
input rates of L=4 and K=25. Is this an efficient input combination? Why or why not? If no, determine the efficient input combination for producing an output rate of 200. what is the capital-labor ratio?
c. If the price of labor increases from $4 to $8 per unit, determine the efficient input combination for an output rate of 200. What is the capital labor ratio now? What input substitution has the firm made?