Posted: December 30th, 2021

A firm uses capital (K) and labor (L) to produce output y. The production function is given byy = k^0.5 * L^0.5 . Both the wage of labor and the cost of using capital are equal to 1.a) Compute the technical rate of substitution. Give a brief interpretation. (6 points)b) The firm minimizes the cost of production for any output level y. Give the two condi tions that have to be satisfied for a cost minimum. (8 points)c) Show that the cost function for this firm is given by c( y) = 2y . (8 points)

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