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Consider the following production function : Q = 10L2K, where Q is the amount of production,L is the amount of Labor and K is the amount of Capital.
a. Does this production function exhibit the law of diminishing returns? Explain.
b. Does this production function exhibit diminishing return to scale ? Explain.
c. If the price of labor is 1 dollar per unit and the price of capital is 5 dollars per unit, how much labor and capital should this firm optimally hire ?
Hint 1: total budget is 150,000 dollars
Hint 2: marginal product of labor is 20LK.
Hint 3: marginal product of capital is 10L2.
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