If output is produced according to Q = 4LK, the price of K is $10, and the price of L is $40, then the cost minimizing cost minimizing combination of K and L capable of producing 64 units of output is
A)L = 16 and K = 1.
B)L = 2 and K = 8.
C)L = 2 and K = 2.
D)L = 32 and K = 32.
E)L= 1 and K = 16.

Question

Quizplus · Accepted Answer

To find the cost minimizing combination, we need to use the formula:
MC of K / P of K = MC of L / P of L
Or, MC of K / 10 = MC of L / 40       (since the price of K is $10 and the price of L is $40)
Given, Q F1F1F1S1F1F1F10 4LK
Or, Q = min(F1F1F1S1,F1F1F10 4L, F1F1F10 K)
Or, Q = min(F1F1F1S1, 4L, K)        (since K is multiplied by F1F1F10)
To produce Q = 64 units of output, we can substitute Q = 64 in the above equation:
64 = min(F1F1F1S1, 4L, K)
Since we want to minimize the cost, we need to use the lowest possible values for L and K.
For L, we can set L = 16, which gives Q = 4L = 64, and satisfies the equation.
For K, we can set K = 8, which also gives Q = K = 64, and satisfies the equation.
Therefore, the cost minimizing combination is L F1F1F1S1F1F1F10 2 and K F1F1F1S1F1F1F10 8.

If Output Is Produced According to Q = 4LK, the Price