Production function is Q(K,E) =2KE where K is capital and E is employment in work hours. Use the production function to fill the table below. Optimal combination of inputs Wage Rent Total Cost $15 $20 $25 $45 $40 $30 $15 000 $15 000 $15 000

Production function is Q(K,E) =2KE where K is capital and E is employment in work hours. Use the production function to fill the table below. Optimal combination of inputs Wage Rent Total Cost $15 $20 $25 $45 $40 $30 $15 000 $15 000 $15 000

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: The Cost Of Production

Section12.4: Costs In The Short Run And In The Long Run

Problem 4QQ

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Concept explainers

Factors of Production

Factors of production – in simple words means the factors that are used for producing any product or service. This includes the resources which are necessary for the manufacturing of products. Factors of production are also known as the building blocks of the economy.

Question

Production function is Q(K,E) =2KE where K is capital and E is employment in work hours. Use the production function to fill
the table below.
Optimal combination of
|inputs
Wage
Rent
Total Cost
$15
$20
$15 000
$15 000
$15 000
$45
$40
$25
$30

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Ten-year old Sarah is starting a lemonade stand, she uses baskets of lemons (L) and other ingredients (O). She is able to produce lemonade according to the production function f(L, O) = 1 2 L 2O. The cost of a basket of lemons is $10 and the average cost of the other goods is $4. (a) Derive MPL and MPO. (b) Currently Sarah is using 4 baskets of lemons and 40 units of the other goods. Using this information, calculate MPL and MPO. (c) True/False. At her current use of inputs Sarah is minimizing costs. If true, explain why. If false, what would you recommend Sarah do? (d) Sarah wants to produce 320 units of lemonade. Determine the cost minimizing combination of inputs to use. (e) Assuming no changes in the market price of lemonade nor in the prices of the inputs, if Sarah continues to produce 320 units of lemonade in the long run, what will Sarah’s long run costs be.