Question 37 [ DIFFICULT] Consider two firms, both producing the same product, using the same production technology given by: a = √√√√K This production technology implies the following MRTS: ΔΥ K MRTS= ΔΧ L where K is the amount of capital used and L is the amount of labour used to produce output. It can be shown that this production technology implies the following minimised total cost function: TC = 2q√w√r where w represents the per-unit cost of labour and r represents the per-unit cost of capital. Suppose each firm can hire labour at $1 per unit and capital at $9 per unit. Each firm produces 90 units of output. One firm (Firm 1) chooses its input combination to minimise costs of production. However, Firm 2 instead produces output using twice as much labour as Firm 1. Compared to Firm 1, how much higher are Firm 2's cost of production? a) $270 b) $67.50 c) $275 d) $135 e) $132

Question 37 [ DIFFICULT] Consider two firms, both producing the same product, using the same production technology given by: a = √√√√K This production technology implies the following MRTS: ΔΥ K MRTS= ΔΧ L where K is the amount of capital used and L is the amount of labour used to produce output. It can be shown that this production technology implies the following minimised total cost function: TC = 2q√w√r where w represents the per-unit cost of labour and r represents the per-unit cost of capital. Suppose each firm can hire labour at $1 per unit and capital at $9 per unit. Each firm produces 90 units of output. One firm (Firm 1) chooses its input combination to minimise costs of production. However, Firm 2 instead produces output using twice as much labour as Firm 1. Compared to Firm 1, how much higher are Firm 2's cost of production? a) $270 b) $67.50 c) $275 d) $135 e) $132

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Cost of Production

The entire idea of the cost of production or production cost is applied corresponding, or we can say that it is related to monetary cost. Money cost refers to any money expenditure which the firm or supplier, or producer undertakes in purchasing or hiring factor of production or factor services.

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