Consider the following Cobb-Douglas production function: Y = 10L04K04. Suppose that the price of labor is w = 20 and the price of capital if r = 40. %| a- Derive the total cost curve for this production function. b- Derive the marginal cost curve for this production function. c- Plot the marginal and total cost curves for q = 1, 2, 3, 4, 5. What does it tell you about economies of scale for the production function?

Consider the following Cobb-Douglas production function: Y = 10L04K04. Suppose that the price of labor is w = 20 and the price of capital if r = 40. %| a- Derive the total cost curve for this production function. b- Derive the marginal cost curve for this production function. c- Plot the marginal and total cost curves for q = 1, 2, 3, 4, 5. What does it tell you about economies of scale for the production function?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the following Cobb-Douglas production function: Y = 10L04K04. Suppose that the
price of labor is w = 20 and the price of capital ifr = 40.
%3D
a- Derive the total cost curve for this production function.
b- Derive the marginal cost curve for this production function.
c- Plot the marginal and total cost curves for q = 1, 2, 3, 4, 5. What does it tell you
about economies of scale for the production function?
d- Suppose that the wage rate went up from 20 to 30. What would happen to the total
wage bill relative to total costs,
wL
? What would happen to total costs?
wL+rK

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