Find and sketch the expansion path

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Reference no: EM133643995

Question

Castro's daily production function for producing custom-printed mugs is q = 15K^0.5L^0.5. The price of labor is $40 and the price of capital is $10.

a. Find and sketch the expansion path.

b. How much capital and labor should Castro employ to produce 150 mugs a day?

c. What is the lowest possible cost of producing 150 mugs a day?

d. Repeat parts (b) and (c), for an output level of 450 mugs.

e. What is the firm's LRAC at q = 150? At q = 450? What does the firm's LRAC look like over this range of output? Are there economies of scale? Explain.

Reference no: EM133643995

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