A Firm's Production Function Is Given By $Q = K L$

question 59

Multiple Choice

A firm's production function is given by $Q = K L$ . The marginal products of labor and capital are, respectively, $M P _ { L } = K$ and $M P _ { K } = L$ . The wage rate of labor is $w = \$ 10$ and the rental rate of capital is $r = \$ 20$ . What is the most efficient combination of labor and capital $( L , K )$ that also yields a cost of exactly $\$ 1000$ ?

• A) \(( 10,45 )\)
• B) \(( 25,50 )\)
• C) \(( 50,25 )\)
• D) \(( 20,40 )\)

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Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.

Economic Profits

The excess of total revenue over total costs, including both explicit and implicit costs, reflecting the financial gain in terms of opportunity costs.

Price-Taker Market

A market situation in which the sellers or buyers have no control over the prices at which they buy or sell goods or services.

Limited Resources

A concept in economics that refers to the finite availability of resources such as time, money, and materials, necessitating allocation decisions.