A firm has production function f (x1, x2, x3, x4)= min{1, x2} +min{x3, x4}.This firm faces competitive factor markets where the prices for the four factors are w1 = $4, w2 = $8, w3 = $5, and w4 = $3.The firm must use at least 20 units of factor 2.The cost of producing 100 units in the cheapest possible way is
A)$700.
B)$1,040.
C)$880.
D)$1,300.
E)$300.

Question

Quizplus · Accepted Answer

The production function suggests a Leontief production function, which is characterized by fixed proportions of inputs. The firm's production function indicates that the output is determined by the minimum of two sets of inputs: (x1, x2) and (x3, x4). Given the prices of the factors (w1 = $4, w2 = $8, w3 = $5, w4 = $3) and the requirement to use at least 20 units of factor 2, the firm will aim to minimize costs by choosing the cheapest combination of inputs that meet the production requirements. The correct calculation involves finding the combination of inputs that meets the production requirements at the lowest cost, considering the constraint on factor 2.

A Firm Has Production Function F (X1, X2, X3, X4)=