A firm produces two products, Good 1 and Good 2. The cost of producing (in RM) A units of Good 1 and B units of Good 2 i

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A Firm Produces Two Products Good 1 And Good 2 The Cost Of Producing In Rm A Units Of Good 1 And B Units Of Good 2 I 1 (61.6 KiB) Viewed 11 times

A firm produces two products, Good 1 and Good 2. The cost of producing (in RM) A units of Good 1 and B units of Good 2 is TC = 5A² + 2AB + 3B² + 800 Assume the producer committed to producing 39 units of either type in total. i) Derive the production constraint. ii) Write down the Lagrange function in this case. iii) By using Lagrange Multiplier Method, calculate the units of Good 1 and Good 2 which minimise cost. iv) Calculate the minimum total cost. v) Use the bordered Hessian to show that the cost is in fact a minimum. vi) Briefly state the effect on cost when production increases by two units.