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klasskru [66]
3 years ago
11

Suppose that production for good X is characterized by the following production function, Q = K0.5L0.5, where K is the fixed inp

ut in the short run. If the per-unit rental rate of capital, r, is $15 and the per-unit wage, w, is $5, then the average fixed cost of using 16 units of capital and 25 units of labor is:
Business
1 answer:
Ad libitum [116K]3 years ago
8 0

Answer:

B). $12

Explanation:

As per the given data, the AFC(Average Fixed Cost) for employing 25 factors of labor and 16 factors of capital would be $12.

We are given the production function,

Q = K^{0.5} L^{0.5}

where,

K = allotted input in short-term

Rental rate of each unit/factor(r) = $15

Wage per factor(w) = $5

As we know, the two inputs are labor, as well as, capital;

To find AFC, we need TC;

so,

TC = (Fixed cost + Variable cost)

TC = (240(15 * 16) + 125(25 * 5) = 365

Thus,

AFC = $ 12

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All options are missing firm the question-

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b. fixed costs of a process are equal to its variable costs.

c. total costs equal total revenues for a process.

d. total costs for one process equal total costs for another process.

e. the process no longer loses money.

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3 years ago
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