Suppose That Production for Good X Is Characterized by the Following

question 20

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 $25 and the per-unit wage,w,is $15,then the average fixed cost of using 81 units of capital and 9 units of labor is:

• A) $5.
• B) $75.
• C) $80.
• D) There is insufficient information to determine the average fixed costs.

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Definitions:

Spending Variance

The difference between the budgeted or planned amount of expenditure and the actual amount spent.

Static Planning Budget

A budget based on a fixed level of activity and does not change in response to variations in activity levels, offering a baseline for performance evaluation.

Flexible Budget

A budget that adjusts or flexes with changes in the volume or activity level, making it more useful for controlling costs and operational efficiency.

Net Operating Income

The profit generated from a company's operations, excluding non-operating income and expenses like interest and taxes.