Question
Asked Oct 18, 2019
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Question 28
Consider a firm with production function f(L,K)=3L1/3K2/3. Assume that capital is fixed at K=1. Assume also that the price of capital r=5 and the price of labor w=3. Then, the average fixed cost of producing q units is?

AF(q)=3/q.

AF(q)=10/q.

AF(q)=5/q.

AF(q)=1/3q.

AF(q)=2/3q.

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Expert Answer

Step 1

The average fixed cost (AFC) is determined by taking the ratio of total fixed cost with the total output produced respectively. In other words total fixed cost (TFC) divided by quantity of output produced (Q) is the average fixed cost.

Step 2

In this question, capital is fixed and the price of capital is $5, also the price of labor is $3 (labor cost is a variable factor, so it need not considered). T...

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