I was wondering if anyone could please help me understand the following question?
Thanks in advance!
Firm A's production function is:
Q = 5LK,
= output, L = labour measured in person hours, and K = capital measured in
machine hours. The firm's labour cost is $20 per hour, while the firm uses $80 per hour
as an implicit machine rental charge per hour. The firm's current budget is $64,000 per
month to pay labor and capital.
a) Given the information above, determine firm A's optimal capital/labor ratio.
b) Set up and explain the constrained maximisation problem using the
information given above.