Suppose a Firm with a Production Function Q = KL

question 149

Multiple Choice

Suppose a firm with a production function Q = KL (where MP_L = K and MP_K = L) is producing 125 units of output by using 5 workers and 25 units of capital. The wage rate (W) per worker is $10 and the rental per unit of capital (R) is $2. If it decreases output to 45 units, long-run average total cost _____ at 125 units of output to _____ at 45 units of output.

• A) rises from $1.80; $2
• B) rises from $0.80; $1.33
• C) falls from $0.80; $0.60
• D) falls from $1.80; $1.15

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Definitions:

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