a.The production function of Firm X is given as follow: q=10(K0.5)(L0.5) where q, K and L...

a.The production function of Firm X is given as follow:

q=10(K^0.5)(L^0.5)
where q, K and L denote firm's output, capital and labor respectively.
The marginal product of labor (MP_L ) and capital (MP_K ) are expressed as follow:

MP_L =5(K^0.5)(L^-0.5)

MP_K =5(K^-0.5)(L^0.5)

i. What are the capital elasticity of output and labor elasticity of output respectively?

ii. If the wage of labor (w) and rental of capital (r) are $100 and $400 respectively, what is the minimum cost required to produce 200 unit of outputs?

iii.If the level of capital is fixed at 25, what is the average production cost to produce 400 units of output?

b. Explain under what circumstance the producer surplus would be equal to profit.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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