Consider a competitive firm whose Cobb-Douglas production function is f (a1, x2) = V12, where r1 denotes the amount of labor and x2 denotes the amount of capital. Suppose that the amount of capital is fixed in the short run at 2 100. Let the hourly wage rate be wi = $20, the capital rental rate w2 = $30 and the price of the firm's product p $100. (a) Are the returns to scale increasing, constant or decreasing? Explain you assertion. (b) What is the short-run marginal cost function? (c) What is the average variable cost function of this firm?
Consider a competitive firm whose Cobb-Douglas production function is f (a1, x2) = V12, where r1 denotes the amount of labor and x2 denotes the amount of capital. Suppose that the amount of capital is fixed in the short run at 2 100. Let the hourly wage rate be wi = $20, the capital rental rate w2 = $30 and the price of the firm's product p $100. (a) Are the returns to scale increasing, constant or decreasing? Explain you assertion. (b) What is the short-run marginal cost function? (c) What is the average variable cost function of this firm?
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter7: Production And Cost In The Firm
Section: Chapter Questions
Problem 19PAE
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Transcribed Image Text:Consider a competitive firm whose Cobb-Douglas production function is f (x1, x2)
where x1 denotes the amount of labor and x2 denotes the amount of capital. Suppose that the amount of
capital is fixed in the short run at 2 = 100. Let the hourly wage rate be wi = $20, the capital rental rate
w2 = $30 and the price of the firm's product p = $100.
(a) Are the returns to scale increasing, constant or decreasing? Explain you assertion.
(b) What is the short-run marginal cost function?
(c) What is the average variable cost function of this firm?
(d) What is the short-run output of this firm?
(e) Will the firm continue to operate in the long run? Explain your assertion.
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