Saxxon Fifth Avenue's production function is given by Q = L+ K. Let w = 1 and r = 2 be theprices of labor and capital, respectively.(a) Find the equation of Saxxon Fifth Avenue's longrun total cost curve.Hint: Note that labor and eapital are perfect substitutes.(b) Suppose capital is fized at 5 units (i.e., K = 5) in the short run. Derive the equation for SazzonFifth Avenue's shortrun total cost curve. For simplicity, assume the fxed cost is sunk.(c) In a graph, draw Saxon Fifth Avenue's short-run total cost curve and longrun total cost curve.

A curve that depicts the relationship between the quantity of output produced by a firm and the…

Saxxon Fifth Avenue's production function is given by Q = L + K. Let w = 1 and r = 2 be the prices of labor and capital, respectively. (a) Find the equation of Saxxon Fifth Avenue's long-run total cost curve. Hint: Note that labor and capital are perfect substitutes. (b) Suppose capital is fixed at 5 units (ie, K = 5) in the short run. Derive the equation for Saxxon Fifth Avenue's short-run total cost curve. For simplicity, assume the fixed cost is sunk (c) In a graph, draw Saxxon Fifth Avenue's short-run total cost curve and long-run total cost curve.

Saxxon Fifth Avenue's production function is given by Q = L + K. Let w = 1 and r = 2 be the prices of labor and capital, respectively. (a) Find the equation of Saxxon Fifth Avenue's long-run total cost curve. Hint: Note that labor and capital are perfect substitutes. (b) Suppose capital is fixed at 5 units (ie, K = 5) in the short run. Derive the equation for Saxxon Fifth Avenue's short-run total cost curve. For simplicity, assume the fixed cost is sunk (c) In a graph, draw Saxxon Fifth Avenue's short-run total cost curve and long-run total cost curve.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter10: Cost Functions

Section: Chapter Questions

Problem 10.3P

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Question

Saxxon Fifth Avenue's production function is given by Q = L+ K. Let w = 1 and r = 2 be the
prices of labor and capital, respectively.
(a) Find the equation of Saxxon Fifth Avenue's longrun total cost curve.
Hint: Note that labor and eapital are perfect substitutes.
(b) Suppose capital is fized at 5 units (i.e., K = 5) in the short run. Derive the equation for Sazzon
Fifth Avenue's shortrun total cost curve. For simplicity, assume the fxed cost is sunk.
(c) In a graph, draw Saxon Fifth Avenue's short-run total cost curve and longrun total cost curve.

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Step 1: Define Cost Curve.

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Step 2: Find the long-run total cost curve.

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Step 3: Find the short-run cost curve.

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Step 4: Illustrate the cost curves:

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