A cost minimizing firm has the following short run production function: Q = f (L, K) = 72 L + 5...
Question:
A cost minimizing firm has the following short run production function: {eq}\displaystyle Q = f (L,\ K) = 72 L + 5 L^2 - 0.2 L^3 {/eq}.
a) Briefly explain why this is a short run production function.
b) At what level of employment would diminishing returns set in for the variable input?
c) Find the levels of employment that define stage two in the production process.
d) If the market determined real wage rate is {eq}\$20 {/eq}, determine the amount of labor a cost minimizing firm would hire in order to minimize the total cost of production.
Production Function
Production function gives the maximum amount of output produced by a given set of inputs. Conventionally, labor and capital are assumed as the primary inputs responsible for the production of goods and services. Various forms of production function are found in economics. Production function differs from industry to industry.
Answer and Explanation: 1
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View this answer(a) In short run, Capital (K) remains fixed, whereas Labour (L) is only the variable input. Now, given the Production Function, one can conclude...
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Production Function in Economics: Definition, Formula & Example
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Chapter 11 / Lesson 27
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Learn about the production function. Read the production function definition in economics, learn the production function formula. Plus, see graphs and examples.
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