Suppose that the production function takes the form X = min(10L, 5K) and that a competitive firm faces a wage rate of £60 per week and a weekly capital rental of £32. (a) How much must the firm spend to produce 100 units of output, and what is the average cost of production when X = 100? (b) What is the incremental cost of producing the 101st unit of output? (c) What happens to the cost of producing 100 units of output if the wage rate and the rental cost of capital rise by 25 per cent each? What happens to the average and marginal cost?
Suppose that the production function takes the form X = min(10L, 5K) and that a competitive firm faces a wage rate of £60 per week and a weekly capital rental of £32. (a) How much must the firm spend to produce 100 units of output, and what is the average cost of production when X = 100? (b) What is the incremental cost of producing the 101st unit of output? (c) What happens to the cost of producing 100 units of output if the wage rate and the rental cost of capital rise by 25 per cent each? What happens to the average and marginal cost?
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter4: Extent (how Much) Decisions
Section: Chapter Questions
Problem 3MC
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Suppose that the production function takes the form X = min(10L, 5K) and that a competitive firm faces a wage rate of £60 per week and a weekly capital rental of £32.
(a) How much must the firm spend to produce 100 units of output, and what is the average cost of production when X = 100?
(b) What is the incremental cost of producing the 101st unit of output?
(c) What happens to the cost of producing 100 units of output if the wage rate and the rental cost of capital rise by 25 per cent each? What happens to the average and marginal cost?
(d) What happens to the cost of producing 100 units of output if the wage rate increases by £1, or if the cost of capital increases by £1?
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