A Firm Is Currently Producing 1140 Units of Output According

question 66

Multiple Choice

A firm is currently producing 1140 units of output according to the production function q = L^4/3K^1/2 and faces input prices equal to w = $20 and r = $80.In the short run,capital is fixed at 5 units.In the long run,the firm's costs are

• A) lower because the firm substitutes towards more labor and away from capital.
• B) lower because the firm substitutes towards more capital and away from labor.
• C) higher because the firm substitutes towards more labor and away from capital.
• D) higher because the firm substitutes towards more capital and away from labor.

---

Definitions:

Average Output

The total output produced divided by the number of units of input, measuring the efficiency or productivity of production.

Diminishing Marginal Returns

The principle that as an additional unit of a factor of production is added to a fixed amount of other factors, the increase in output will eventually decrease.

Variable Inputs

Refers to inputs used in production that can be adjusted in the short term to meet changes in output levels, such as labor or raw materials.

Returns To Scale

A concept in economics that describes how a proportionate increase in all inputs affects the level of output.