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. With 9 units of labor at $15 per unit, the variable cost is 9 * $15 = $135.

Suppose That Production for Good X Is Characterized by the Following