Question

The number of square feet they can build in a week is described as , where L is the number of workers and K is units of capital. The wage rate is $1000 per week and a unit of capital costs $250 per week. Suppose they are initially building 100 ft2 per week. What are their short-run and long-run cost functions?

Answer 1

L = Number of Workers

K = units of Capital

Wage rate = $1,000 Per week

Unit of Capital costs = $250 Per Week

Initial build = 100 Feet Per Week

Short & long run costs Function

Costs = Labor Costs + Capital

= $1000(L) + $250(100 Feet)

Cost function = 1000L + 250K