Define the term ‘Shepard’s lemma’. Assume that the production function of a producer is given by Q=5L0.5 K0.3, where Q,L and K denote output, labour and capital respectively. If labour cost ₹ 1 per unit and capital ₹2, find the least cost combination of inputs (L&K)
Introduction In microeconomics, cost minimization is an essential concept where a firm aims to produce a given level of output at the lowest possible cost. Shepard’s Lemma is a theoretical tool that helps in deriving input demand functions from the cost function. In this answer, we will define Shepard’s Lemma and apply it to the […]