(B) Use less capital and less labor. (c) Use more capital and less labor. (d) Us

Question

(B) Use less capital and less labor. (c) Use more capital and less labor. (d) Use less capital and more labor. (e) The firm is currently minimizing cost. 10. A firm that has a production function with diminishing MRT SLK is currently producing Q 25 units of output at the cost minimizing combination of labor and capital. If the cost of capital decreases, then the new cost minimizing combination of labor and capital will have: (a) more capital and less labor. more capital and more labor. (c) less capital and less labor less capital and more labor. phillo 25 11. A firm faces production function Q (L,K) = LK with a production target of Qo-8. The cost of labor is w = 1 per unit and the cost of capital is r = 2 per unit. If the firm is stuck with K-6 in the short run, what is their total fixed cost? (a) 6 (b) 12 (d) 16 (e) 12. Given the expansion path in the polt, what can we say? (a) Labor and Capital are both inferior inputs. (b) Labor and Capital are both normal inputs. Labor is a normal input and Capital an inferior input. Labor is a inferior input and Capital an normal input. Qi

Explanation / Answer

Fixed cost is the cost of production that does not change with the output. It is given that the firm is stuck with a capital of 6 units. The cost of this capital will be 6 x 2 is equals to $12. Because the form cannot change the quantity of capital it will remain fixed and will be treated as fixed cost. This gives us an indication that the fixed cost is $12. So the correct option is option B

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