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A bicycle company producer according to the following production function Q=5KL, where Q is the number of bicycles produced per week, K is units of capital and L is the number of units of labor. In the short term, the capital stock is given at (K with an overbar = 2). Weekly wages are given at w = 10 and the price of capital r = 5.
a) Does the company's short-term production function comply with the law of diminishing returns in terms of labor input?
b) In the longer term, the company can vary the contribution of both K and L.
i) Draw the isoquant for the production level 10 mopeds in a diagram.
ii) Given w = 10 and r = 5, show by means of an isoquant line in the chart (in i) the combination of capital and labor that minimizes the costs involved in production level, Q = 10
