Economics Homework Solutions
#214369
Capital and Labor
A firm produces output, y, by using capital, k, and labor, l, according to the production function.
y=k^at^b
The firm can purchase all the capital and labor it wants at prices r and w, respectively.
a) Use the method of Lagrange multipliers to find the cost function c(r,w,y). Find the average and marginal cost.
b) What is the interpretation of the Lagrange multiplier in part (a)?
c) What is the importance of the term (a+b) being less than, equal to, or greater than one?
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