Question

You just purchased an existing business that produces solar panels according to the following production function:

Q=K0.5L0.5

The business currently has 25 units of capital, which cost $1 each, and no workers. Your first order of business is to hire workers and begin production. Workers can be hired for $1 each.

The market price for the panels that you produce just fell to $100. How much profit, if any, will you make if you produce solar panels given the existing capacity (short run)?

4. You just purchased an existing business that produces solar panels according to the following production function:

Q=K0.5L0.5

The business currently has 25 units of capital, which cost $1 each, and no workers. Your first order of business is to hire workers and begin production. Workers can be hired for $1 each.

The market price for the panels that you produce just fell to $100. How much profit, if any, will you make if you produce solar panels given the existing capacity (short run)?

Answer 1

$50

Step-by-step explanation:

In the production function, Q = K0.5L0.5,

K denotes the fixed input in the short run.

First, we calculate the total cost:

Cost of Capital= 25 x $1 = $25

Cost of Labor (for a start 25 workers are used)= 25 x $1 = $25

Total= $50

Since the price of the solar panels is $100, substrating from the total cost $50 (100-50) we get $50 profit per unit of solar panel.