A firm's production process uses labor, L, and capital, K, and materials, M, to produce an output, Q according to the function Q = KLM, where the marginal products of the three inputs are MPL = KM, MPK = LM, and MPM = KL. The wage rate for labor is w = 2, the rental rate of capital is r = 1, and the cost of materials is m = 4 per unit. What is the long run cost-minimizing level of capital that the firm must use to produce a target level of output, Q = 1000?
A) K = 5
B) K = 10
C) K = 20
D) K = 40
Correct Answer:
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