A competitive firm uses two inputs and has a production function f(x1, x2)=23x.25 1x.25 2.The firm can buy as much of either factor as it likes at factor prices w1 = w2 = $1.The cost of producing y units of output for this firm is A)23(x1 + x2)y. B)y/46. C)(x1 + x2)/23. D)2(y/23)2. E)y₂/46.

Question

Quizplus · Accepted Answer

The cost of producing y units of output involves finding the cost function that relates the output level to the total cost. Given the production function $f(x_1, x_2) = x_1^{0.25}x_2^{0.25}$ and factor prices $w_1 = w_2 = $1$, the cost of producing y units is not directly given by the production function. However, the correct approach involves minimizing the cost subject to the production function, which typically results in a cost function related to the output level. Option D, $2(y/23)^2$, is a plausible representation of such a cost function, assuming specific derivations and optimizations have been made based on the given production function and factor prices.

A Competitive Firm Uses Two Inputs and Has a Production