A firm has fixed costs of $4,000.Its short-run production function is y = 4x^1/2, where x is the amount of variable factor it uses.The price of the variable factor is $4,000 per unit.Where y is the amount of output, the short-run total cost function is A)4,000/y + 4,000. B)8,000y. C)4,000 + 4,000y. D)4,000 + 250y2. E)4,000 + 0.25y2.

Question

Quizplus · Accepted Answer

The short-run total cost function is the sum of fixed costs and variable costs. Fixed costs are $4,000. Variable costs are equal to the price of the variable factor times the amount of variable factor used. The price of the variable factor is $4,000 per unit. The amount of variable factor used is x. Therefore, variable costs are 4,000x. The short-run total cost function is therefore 4,000 + 4,000x = 4,000 + 250y2.

A Firm Has Fixed Costs of $4,000