Suppose a firm has a production function given by Q = 2?2L?K.If the rental rate of capital is $100 per unit, the wage rate is $1,400 per week and the firm initially has 25 units of capital, what is the firm's short-run cost function? A) C(Q) = 2500 + 7Q² B) C(L) = 2500 + 1400L C) C(Q) = 0.25 + 7Q² D) C(L) = 0.25 + 1400L

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Quizplus · Accepted Answer

In the short run, capital is fixed, so the cost of capital is a fixed cost. The cost of capital is 25 units * $100/unit = $2500. The variable cost is the wage rate times the amount of labor, which is $1400L. Therefore, the short-run cost function is the sum of fixed and variable costs, which is C(L) = 2500 + 1400L.

Suppose a Firm Has a Production Function Given by Q