A competitive firm uses two inputs and has a production function f(x1, x2)= 39x.25 1x.25 2.The firm can buy as much of either factor as it likes at factor prices w1 = w2 = $1.The cost of producing y units of output for this firm is A)2(y/39)2. B)39(x₁ + x₂)y. C)(x₁ +x₂)/39. D)y/78. E)y₂/78.

Question

Quizplus · Accepted Answer

The cost of producing y units of output is derived from the production function and the factor prices. Given the production function $f(x_1, x_2) = 39x_1^{0.25}x_2^{0.25}$ and factor prices $w_1 = w_2 = $1$, the cost function can be found by solving for $x_1$ and $x_2$ that minimize the total cost subject to producing $y$ units of output. The cost of producing $y$ units, given the symmetry and the power of 0.25 in both $x_1$ and $x_2$, leads to equal spending on both inputs. The correct cost function, considering the production function and equal factor prices, is $2(y/39)^2$, which reflects the costs associated with producing $y$ units of output efficiently given the production technology and input prices.

A Competitive Firm Uses Two Inputs and Has a Production