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 fixed 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 fixed costs.

Question

Quizplus · Accepted Answer

Fixed cost (FC) is equal to the total cost of using fixed inputs. In this case, the only fixed input is capital (K). The total cost of using 81 units of capital is:

FC = rK = 25*81 = $2,025

Therefore, the fixed cost of using 81 units of capital and 9 units of labor is $2,025.

Suppose That Production for Good X Is Characterized by the Following