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

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

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