Suppose a firm has a production function given by Q = 2(2L)^0.5K^0.5.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) = 2,500 + 7Q² B) C(L) = 2,500 + 1,400L C) C(Q) = 0.25 + 7Q² D) C(L) = 0.25 + 1,400L

Question

Quizplus · Accepted Answer

The firm's short-run cost function includes fixed costs from capital and variable costs from labor. With 25 units of capital at $100 per unit, fixed costs are $2,500. The production function implies labor cost is related to output squared, leading to the cost function C(Q) = 2,500 + 7Q^2.

Suppose a Firm Has a Production Function Given by Q