Ask Question
30 August, 01:15

A firm produces output according to the production function: Q = F (K, L) = 4K + 8L. a. How much output is produced when K = 2 and L = 3? unit (s) b. If the wage rate is $60 per hour and the rental rate on capital is $20 per hour, what is the cost-minimizing input mix for producing 32 units of output? Capital: Labor: c. If the wage rate decreases to $20 per hour but the rental rate on capital remains at $20 per hour, what is the cost-minimizing input mix for producing 32 units of output? Capital: Labor:

+5
Answers (1)
  1. 30 August, 01:36
    0
    Production function: F (K, L) = 4K + 8L

    Part a)

    When K = 2 and L = 3, then Q = 4K + 8L

    Q = 4 (2) + 8 (3)

    Q = 32 units

    Part b)

    Since these are substitute goods, the firm can either use 23/4 = 8K or 32/8 = 4L

    Cost of 8K = 8 (20) = $160 Cost of 4L = 4 (60) = $240

    Since cost of using 8K is lower, the firm will use (SK, OL) to produce 32 units output.

    Part c)

    The firm can either use 23/4 = 8K or 32/8 = 4L

    Cost of 8K = 8 (20) = $160 Cost of 4L = 4 (20) = $80

    Since cost of using 4L is lower, the firm will use (01C, 4L) to produce 32 units output.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “A firm produces output according to the production function: Q = F (K, L) = 4K + 8L. a. How much output is produced when K = 2 and L = 3? ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers