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The production function for (a Music company ) their CDs is q= 25*K*L , where q is the number of CDs produced each month, K is the hours of equipment used, and L is the hours of labour. The marginal products of labour and capital are 25K and 25L respectively. Workers are paid $8 per hour and the equipment rental rate is $8 per hour.
a) Determine the cost-minimizing capital-labour ratio for this firm.
b) How much does it cost to produce 10000 CDs?
c) Suppose that the rental rate decreases to $6 per hour. What is the new cost-minimizing capital-labour ratio?
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