The Cobb-Douglas production function for a beer manufacturer is q=1.52L^0.6K^0.4. If we assume that the firm's capital is fixed at 250 units and the rental rate of capital is $5 per unit, then average fixed cost is A)$1250. B)$1250/q. C)1.52L^0.6(250)^0.4. D)Unable to determine with information given.

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Quizplus · Accepted Answer

Average fixed cost (AFC) is calculated as the total fixed cost (TFC) divided by the quantity of output (q). Since the firm's capital is fixed at 250 units and the rental rate of capital is $5 per unit, the total fixed cost is 250 units * $5/unit = $1250. Therefore, AFC = $1250/q.

The Cobb-Douglas Production Function for a Beer Manufacturer Is Q=1