A Firm Has a Production Function of Q = KL

question 33

Multiple Choice

A firm has a production function of Q = KL + L, where MP_L = K + 1 and MP_K = L. The
Wage rate (W) is $100 per worker and the rental (R) is $100 per unit of capital. In the short run, capital (K) is fixed at 4 and the firm produces 100 units of output. The firm's short-run total cost of producing 100 units of output is $____.

• A) 3,000
• B) 2,400
• C) 1,900
• D) 1,500

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Definitions:

Fixed Production Costs

Expenses that do not fluctuate with the level of production output, such as depreciation on factory buildings and salaries of certain managers.

Depreciation

An accounting method of allocating the cost of a tangible asset over its useful life.

Period Cost

Costs that are expensed in the period they are incurred and are not directly tied to production activity.

Indirect Costs

Costs that cannot be directly linked to the production or sale of a specific product or service, such as administration, rent, and utilities.