Question

Consider a firm whose production function is Q = 0.4K⁰·⁵ L⁰·⁵. Its level of capital is fixed at 100 units, the price of labor is PL = 4 per unit, and the price of capital is PK =2 per unit. Given this information, what is the firm's total cost function?

Answer 1

The firm's total cost function is calculated by multiplying the price of labor by the amount of labor used and adding it to the price of capital multiplied by the fixed amount of capital used.

Step-by-step explanation:

The firm's total cost function can be calculated by multiplying the price of labor by the amount of labor used and adding it to the price of capital multiplied by the fixed amount of capital used. In this case, the price of labor is PL = 4 per unit and the price of capital is PK = 2 per unit.

Total Cost = PL * L + PK * K

Substituting the given values, where K (capital) is fixed at 100 units:

Total Cost = 4 * L + 2 * 100 = 4L + 200