Microeconomics – As head of the planning commission of Eastern Motors

1As head of the planning commission of Eastern Motors, your job is to determine where to locatea new plant. The only inputs used in your cars are steel and labor and the production function is s^0.5L^0.5Cobb-Douglas where f (S, L)  S L , where S is tons of steel and L is units of labor. You canlocate your plant either in country A or country B. In country A, steel costs $7 (U.S.) a ton and labor costs $7 (U.S.) per unit. In country B, steel costs $8 (U.S.) per ton and labor costs $6 (U.S.) per unit.(a) what will be the optimal combination of S and L used in the production of cars in Indonesia?(b) what will be the optimal combination of S and L used in the production of cars in Vietnam?(c) In which country should the company locate its new plant so as to minimize costs per unit of output?

 

 

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