Suppose a firms production function is Q = 0.2K0.5 L0.5. Its level of capital is

Question

Suppose a firms production function is Q = 0.2K0.5 L0.5. Its level of capital is fixed at 25 units, the price of labor is PL = $8 per unit, and the price of capital is PK = $4 per unit. The firms average fixed cost function, average variable cost function, and average total cost function are, respectively:

a)AFC = 100/Q, AVC = 2Q, and ATC = 100/Q + 2Q

b)AFC = 100/Q, AVC = 4Q, and ATC = 100/Q + 4Q

c)AFC = 100/Q, AVC = 8Q, and ATC = 100/Q + 8Q

d)AFC = 100/Q, AVC = 12Q, and ATC = 100/Q + 12Q

e)AFC = 100/Q, AVC = 16Q, and ATC = 100/Q + 16Q

Explanation / Answer

option C is correct.

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