Suppose that production for good X is characterized by the following production function, Q = K^0.5L^0.5, where K is the fixed input in the short run.If the per-unit rental rate of capital, r, is $25 and the per-unit wage, w, is $15, then the variable cost of using 81 units of capital and 9 units of labor is A)$2,160. B)$2,025. C)$135. D)there is insufficient information to determine the variable costs.

Question

Quizplus · Accepted Answer

The variable cost is determined by the cost of labor since capital is fixed in the short run. The cost of labor is 9 units * $15 = $135.

Suppose That Production for Good X Is Characterized by the Following