Suppose that a firm's production function is Q = min{K, L}. Currently, the wage is w = 8 and the...
Question:
Suppose that a firm's production function is Q = min{K, L}. Currently, the wage is w = 8 and the cost of capital is r = 8.
(a) What is the minimum cost method of producing Q = 40 units of output?
(b) Suppose that wages fall to w = 4. Keeping total cost the same, what level of output can be produced and mix of K and L is used?
(c) Repeat parts (a) and (b) assuming the production function is Q = K + L.
Production Function
Production function explains the relationship between input and output. It explains the change in one unit of output due to change in one unit of input (labor and capital). The inputs used in the production functions are called factors of productions. They are three stages of production - a) When output increases at an increasing rate, b) when output increases at a decreasing rate and c) when the output declines.
Answer and Explanation: 1
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View this answerA) The firm's production function is given as:
{eq}Q = \min \{ K,L\} {/eq}
Given value of Q is 40, wage is 8, and cost of capital r is 8.
Therefor...
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Production Function in Economics: Definition, Formula & Example
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