A public relations firm is retained to \'cover the media\' for a client. There i

Question

A public relations firm is retained to 'cover the media' for a client. There is something peculiar about to being paid to chat with other people.
a) When the p.r. Firm doubles its capital it quadruples its workforce. It's production function is given by F (K,L)= min [K^2,L]. If it pays workers a wage of 1 and the rental price of capital is 9, find the cost of pricing 100 units, assuming no fixed costs.
b) Now let's model the drop in the cost of media associated with the Internet as a drop in the cost of capital to 1. What is the new cost of producing 100 units?

A public relations firm is retained to 'cover the media' for a client. There is something peculiar about to being paid to chat with other people.
a) When the p.r. Firm doubles its capital it quadruples its workforce. It's production function is given by F (K,L)= min [K^2,L]. If it pays workers a wage of 1 and the rental price of capital is 9, find the cost of pricing 100 units, assuming no fixed costs.
b) Now let's model the drop in the cost of media associated with the Internet as a drop in the cost of capital to 1. What is the new cost of producing 100 units?


a) When the p.r. Firm doubles its capital it quadruples its workforce. It's production function is given by F (K,L)= min [K^2,L]. If it pays workers a wage of 1 and the rental price of capital is 9, find the cost of pricing 100 units, assuming no fixed costs.
b) Now let's model the drop in the cost of media associated with the Internet as a drop in the cost of capital to 1. What is the new cost of producing 100 units?

Explanation / Answer

a) F(K,L) = min [K^2,L] So if F(K,L) is 100 then 100 = min[81*100,1*100] so cost of labor is 100 and cost of capital is 900 so total cost =1000

b) F(K,L) = min [K^2,L] So if F(K,L) is 100 then 100 = min[1*100,1*100] so cost of labor is 100 and cost of capital is 100 so total cost =200

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