Problem
A firm operates with the production function Q K2 L. Q is the number of units of output per day when the firm rents K units of capital and employs L workers each day. The marginal product of capital is 2KL, and the marginal product of labor is K2 . The manager has been given a production target: Produce 8,000 units per day. She knows that the daily rental price of capital is $400 per unit. The wage rate paid to each worker is $200 day.
a) Currently, the firm employs 80 workers per day. What is the firm's daily total cost if it rents just enough capital to produce at its target?
b) Compare the marginal product per dollar spent on K and on L when the firm operates at the input choice in part (a). What does this suggest about the way the firm might change its choice of K and L if it wants to reduce the total cost in meeting its target?
c) In the long run, how much K and L should the firm choose if it wants to minimize the cost of producing 8,000 units of output day? What will the total daily cost of production be?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.