25) A U.S. firm currently produces 200 units of output according to the production function q...

25) A U.S. firm currently produces 200 units of output according to the production function q = L0.5K0.5 and faces input prices equal to wU.S. = rU.S = $11. Should the U.S. firm move their company abroad where they will face input prices equal to wabroad = $6.50 and rabroad = $15.00?

A) Yes, because the total costs will fall from $3,859 to $2,810.

B) No, because the total costs will increase from $2,810 to $3,859.

C) No, because the firm has decreasing returns to scale.

D) Not enough information is given to answer this problem.

the answer is A, but I cant seem to get the same numbers. Please show your work

Solutions

Expert Solution

the cost of producing q=200 units decreased if firm moves to abroad. So rational firm will produce in abroad according to this the answer should be (A) but you are right the numerical values for cost reduction are not the same as in option (A) .

The reasons could be the typos in option or may be in input prices.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

A firm produces output according to the production function: Q= F(K, L) = 4K + 8L.

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? 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? c. If the wage rate decreases to $20 per hour but the rental rate on capital remains at $20 per hour, what is the...

A firm produces gizmos according to the production function Q =10KL , where Q is the...

A firm produces gizmos according to the production function Q =10KL , where Q is the quantity of gismos produced, K is the quantity of capital rented and L is the quantity of labour hired. The manager has been given a production target: Produce 9,000 gizmos per day. He is informed that the daily rental price of capital is $400 per unit and the wage rate is $200 per day. a) Currently, the firm has 10 units of capital. How...

A firm has the following production function: q=KL The firm will produce 64 units of output...

A firm has the following production function: q=KL The firm will produce 64 units of output and faces prices for labor and capital of $4 and $1 respectively. What is the optimal quantity of labor and capital the firm should employ in order to minimize the cost of producing 64 units of output? What is the minimum cost of producing 64 units of output? Show the firms optimal production decision on a graph.

A firm produces output according to the following function: q = f (L, K) = L^1/2...

A firm produces output according to the following function: q = f (L, K) = L^1/2 K^1/4 . The cost of labor is $8 per hour and the rental cost of capital is $2 per hour. a. Determine the returns to scale for this function. b. Suppose the firm wishes to produce at cost $96. How much capital and how much labor does the firm employ? c. Derive the short-run cost function with optimal amount of K from part b....

A firm has a production function Q = KL, where Q is the quantity of output,...

A firm has a production function Q = KL, where Q is the quantity of output, K is the amount of capital and L is the amount of labor. MPL=K and MPK=L . a) Suppose that capital is fixed at K=10 in short run. In this case, the marginal product of labor is MPL=10. Does this production function exhibit diminishing marginal returns to labor? b) Suppose that in the short run, K is fixed at 10. The interest rate is...

3. Frisbees are produced according to the production function q = 2K+L where q =output of...

3. Frisbees are produced according to the production function q = 2K+L where q =output of frisbees per hour, K =capital input per hour, L =labor input per hour. a) If K = 10, how much L is needed to produce 100 frisbees per hour? b) If K = 25, how much L is needed to produce 100 frisbees per hour? c) Graph the q = 100 isoquant. Indicate the points on that isoquant deÖned in part a and part...

A firm produces plastic water bottles according to the production function ? = ?(?,?) = ?...

A firm produces plastic water bottles according to the production function ? = ?(?,?) = ? 2?, where ? is the number of water bottles produced, ? is the quantity of labor employed and ? is the quantity of capital. The associated marginal product functions are ??? = 2?? and ??? = ? 2 . The cost per unit of labor and capital are ? = $4 and ? = $2, respectively. 1) If this firm wants to produce a...

A profit-maximizing competitive firm has the production function ? = ?^.25?^.25 , where output ? is...

A profit-maximizing competitive firm has the production function ? = ?^.25?^.25 , where output ? is produced using capital (?) and labor (?). The price of labor is $2 and the price of capital is $6. The price of the firm’s output is $100. a. Write the firm’s profit function and calculate the first-order conditions. Provide an economic interpretation for each of the first-order conditions. b. Find the profit-maximizing quantities ?* and ?*. c. Find the firm’s total costs. d....

1. A firm operates with the production function Q=K2L. Q represents the daily output when the...

1. A firm operates with the production function Q=K2L. Q represents the daily output when the firm rents K units of capital and employs L workers. The manager has been given a production target: Produce 8,000 units per day. She knows the daily rental price of capital is $400 per unit. The wage rate paid to each worker is $200 per day. a. Currently the firm employs 80 workers per day. What is the firm’s total daily cost of producing...

A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has...

A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has a marginal cost of $15, the average total cost of $10, and a fixed cost of $200 (a) What is its profit? (b) What is its average revenue? (c) What is its average variable cost?

Subjects