Question

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the total fixed cost of producing 80 units of output?

Answer 1

Fixed costs= $200

Step-by-step explanation:

Giving the following information:

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit.

In this case, labor is a variable cost, the more you produce, the bigger it gets (total variable costs, unitary remains the same).

So, our only fixed cost is capital. We know that in a short run capital equals 8 units

Fixed costs= $25*8= 200