1. w=10, r=25. The price of output is constant at $50. The production function is f(L,K) = L^.5K^.5.
If the current capital stock is fixed at 1600 units, what is L* in the short run? How much profit will the firm earn?
2. when Q = 10(LK)^0.5, w = 80, r = 20. what is (L*,K*) to produce 800 units? and what is the elasticity of substitution if both the price of labor and price of capital change to $50/hour?