A USfirm Currently Produces 200 Units of Output According to the the Production

question 54

Multiple Choice

A U.S.firm currently produces 200 units of output according to the production function q = L^0.5K^0.5 and faces input prices equal to w^U.S. = r^U.S = $11.Should the U.S.firm move their company abroad where they will face input prices equal to w^abroad = $6.50 and r^abroad = $15.00?

• A) Yes, because the total costs will fall from $3,859 to $2,810.
• B) No, because the total costs will increase from $2,810 to $3,859.
• C) No, because the firm has decreasing returns to scale.
• D) Not enough information is given to answer this problem.

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