The Wilson Corporation produces output according to Q = 4(KL)^1/2,where K is the amount of capital used and L is the amount of labor employed.If capital costs $2 per unit and labor costs $8 per unit,Wilson's minimized long-run average total cost is: A) $2. B) $2Q. C) $10. D) $10Q. E) $22.

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Quizplus · Accepted Answer

The production function Q = 4(KL)^(1/2) is a Cobb-Douglas function, which implies constant returns to scale. The cost-minimizing combination of inputs occurs where the ratio of marginal products equals the ratio of input prices. Here, the cost per unit of output is minimized at $2, which is the sum of the unit costs of capital and labor divided by the output coefficient.

The Wilson Corporation Produces Output According to Q = 4(KL)1/2,where

The Wilson Corporation Produces Output According to Q = 4(KL)^1/2,where