A Firm Has the Production Function Q = X^1/2₁X₂

question 28

Multiple Choice

A firm has the production function Q = X^1/2₁X₂.In the short run it must use exactly 15 units of factor 2.The price of factor 1 is $75 per unit and the price of factor 2 is $2 per unit.The firm's short-run marginal cost function is

• A)MC(Q)= 10Q/15.
• B)MC(Q)= 30Q^1/2.
• C)MC(Q)= 30 + 75Q2.
• D)MC(Q)= 2Q.
• E)MC(Q)= 15Q^1/2.

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Definitions:

Average Accounting Return Rule

A capital budgeting criterion that measures the profitability of an investment as the average net income divided by the average book value.

Profitability Index Rule

A capital budgeting technique used to decide whether to invest in a project, calculated as the present value of future cash flows divided by the initial investment cost.

Capital Budgeting Technique

Methods used by companies to evaluate and select investments in long-term assets based on their potential to generate cash flows in the future.

Profitability Index

A financial metric used to evaluate the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment.