A firm produces output according to a production function: Q = F(K,L) = min {5K,

Question

A firm produces output according to a production function: Q = F(K,L) = min {5K,5L}. a. How much output is produced when K = 2 and L = 3? b. If the wage rate is $50 per hour and the rental rate on capital is $30 per hour, what is the cost-minimizing input mix for producing 10 units of output? Capital: Labor: c. How does your answer to part b change if the wage rate decreases to $30 per hour but the rental rate on capital remains at $30 per hour? Capital increases and labor decreases. It does not change. Capital decreases and labor increases. Capital and labor increase.

Explanation / Answer

a) K=2, L=3 so Q=min(10,15)=10

b)for cost minimization 5K=5L. so K=L

for 10 no. of output K=L=2 . total cost=50*2+30*2=160

c) if age is now 30 total cost would be 30*2+30*2=120. note that cost minimizing level of input mix would remain sam i.e. K=L=2 for 10 no. of outputs

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.