The Production Function Is F(x₁, X₂)=x^1/2₁x^1/2₂

question 16

Multiple Choice

the production function is f(x₁, x₂) =x^1/2₁x^1/2₂.If the price of factor 1 is $14 and the price of factor 2 is $7, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

• A)x₁ = 0.50x₂.
• B)x₁ =x₂.
• C)We can't tell without knowing the price of output.
• D)x₁ = 2x₂.
• E)x₁ =7x₂.

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Definitions:

Variable Expenses Per Unit

Costs that change directly in proportion to changes in production or sales volume, calculated on a per unit basis.

Fixed Expenses

Expenses that remain constant regardless of production volume or sales efforts, like lease payments or wages.

Variable Expenses

Costs that fluctuate with production volume or business activity levels, such as materials and labor.

Fixed Expenses

Costs that do not fluctuate with the level of production or sales, such as rent or salaries.