A coffee shop's production function is given by Q = KL, where MP_L = K and MP_K = L. The barista wage rate is $10 and the rental per square foot is $15. In the short run, store size is fixed at 500 square feet. The short-run average total cost of serving 1,500 cups of coffee is $_____. A) 6.03 B) 5.02 C) 2.34 D) 0.63

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Quizplus · Accepted Answer

In the short run, K is fixed at 500. To produce 1,500 cups, L = Q/K = 1500/500 = 3. Total cost = (wage rate * L) + (rental rate * K) = (10 * 3) + (15 * 500) = 30 + 7500 = 7530. Average total cost = Total cost / Q = 7530 / 1500 = 5.02.

A Coffee Shop's Production Function Is Given by Q =