Suppose That Production for Good X Is Characterized by the Following

question 14

Multiple Choice

Suppose that production for good X is characterized by the following production function,Q = K^0.5L^0.5,where K is the fixed input in the short run.If the per-unit rental rate of capital,r,is $15 and the per-unit wage,w,is $5,then the average fixed cost of using 16 units of capital and 25 units of labor is:

• A) $9.
• B) $12.
• C) $56.
• D) There is insufficient information to determine the average fixed costs.

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Definitions:

User Cost

Refers to the cost associated with the consumption of a good which decreases its remaining value for future use.

Opportunity Cost

The expense incurred by not choosing the second-best option available during decision-making.

Marginal Product

The additional output produced as a result of employing one more unit of a particular input, assuming all other inputs remain constant.

Total Cost

The complete cost of production, including both fixed and variable costs, incurred by a business in the production of goods or services.