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

question 52

Multiple Choice

The production function is f(x₁, x₂) = x^1/2₁x^1/2₂.If the price of factor 1 is $10 and the price of factor 2 is $15, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

• A)x₁ = 1.50x₂.
• B)x₁ = x₂.
• C)x₁ = 15x₂.
• D)x₁ = 0.67x₂.
• E)We can't tell without knowing the price of the output.

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Definitions:

Average Total Cost

The total cost per unit of output, calculated by dividing the total cost by the quantity of output produced.

Average Total Cost Curve

A graphical representation showing how the average total cost of production changes as the quantity of output changes.

Long-Run Equilibrium

A state in which all factors of production and costs are variable, allowing firms to make adjustments and leading to a situation where economic profit equals zero.