Suppose that production for good X is characterized by the following production function, Q = K^0.5L^0.5, where K is the fixed input in the short run.If the per-unit rental rate of capital, r, is $25 and the per-unit wage, w, is $15, then the fixed cost of using 81 units of capital and 9 units of labor is A)$2,160. B)$2,025. C)$135. D)there is insufficient information to determine the fixed costs.

Question

Quizplus · Accepted Answer

The fixed cost of using 81 units of capital and 9 units of labor can be calculated using the formula:

Fixed cost = rK + wL

Where r is the rental rate of capital, w is the wage rate, K is the units of capital, and L is the units of labor.

Substituting the given values, we get:

Fixed cost = $25 x 81 + $15 x 9
Fixed cost = $2,025

Therefore, the fixed cost of using 81 units of capital and 9 units of labor is $2,025, which corresponds to answer choice B.

Suppose That Production for Good X Is Characterized by the Following