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CHAPTER 7 THE COST OF PRODUCTION - University of Houston

CHAPTER 7 THE COST OF PRODUCTION - University of Houston

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The marginal product of labor is dQ dL = 2KL. The marginal product of capital is dQ dK = L2. Set the marginal rate of technical substitution equal to the input price ratio to determine the optimal capital-labor ratio: 2 15 2 10 KL L = , or K = 0.75L. Therefore, the capital-labor ratio should be 0.75 to minimize the cost of producing any given ...

  Rates, Substitution, Marginal, Marginal rate

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