A firm has the production function q = K0.25L0.25 , where K is capital, L is labor, and q is output. The price of capital is v = 4 and the price of labor is w = 4. [You may need this result: if Yα = Z. Then Y = Z1/α]. (i) Derive the firm’s short-run cost function if capital is fixed at K = 16. (ii) Derive the firm’s long-run cost function. (iii) Someone claims that the firm’s

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Isocost and Isoprofit Curve Analysis

An isocost curve in the production theory that is a crucial part of economics depicts different combinations of factor inputs at a given market cost. In other words, this shows all the combinations of production factors that cost the same for the firm to employ. Usually, this can be depicted as a downward sloping straight line when the firms act as the price-takers in the factor markets. The slope of this mainly depicts the relative prices of different production factors.