A firm plans to produce 1,000 units per day of good X. The firm’s production engineer finds two technically efficient processes (i.e., input combinations of labor and capital) to produce 1,000 units per day:
Process 1 Process 2
Labor 10 8
Capital 20 25
a. If the production function for the existing technology is Q = f(L, K), where Q is the maximum possible output, L is the amount of labor used, and K is the amount of capital used, then f(10, 20) =__________ and f(8, 25) = ____________.
b. If the firm must pay $200 per day for a unit of labor and $100 per day for a unit of capital, which process is economically efficient?
c. If the firm must pay $250 per day for a unit of labor and $75 per day for a unit of capital, which process is economically efficient?
d. “No matter what input prices prevail, as long as the firm employs either process 1 or process 2 it will be technically efficient.” Evaluate this statement.