Consider a firm with the production function q = L}K* The firm faces a wage rate of w = 20 and a capital rental rate of r = 40. Initially, the firm's capital is fixed at K = 16. Derive the short-run cost function for this firm, CSR(q). Using this, what is the firm's short-run marginal cost function, MCSR(q)? (a) If the firm sells output at a price of p = 60, how much labor will it employ? How much output does it produce? (b) In the long run, what is the firm's cost-minimizing ratio of capital to labor, K/L? (c) (d) What is the long-run cost function, CLR(q)?
Consider a firm with the production function q = L}K* The firm faces a wage rate of w = 20 and a capital rental rate of r = 40. Initially, the firm's capital is fixed at K = 16. Derive the short-run cost function for this firm, CSR(q). Using this, what is the firm's short-run marginal cost function, MCSR(q)? (a) If the firm sells output at a price of p = 60, how much labor will it employ? How much output does it produce? (b) In the long run, what is the firm's cost-minimizing ratio of capital to labor, K/L? (c) (d) What is the long-run cost function, CLR(q)?
Chapter10: Cost Functions
Section: Chapter Questions
Problem 10.7P
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Economic question: JUST answer part c and d
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