10. Suppose a firm\'s short-run production function is given by Q = F(L) = 4L. I
ID: 1254162 • Letter: 1
Question
10. Suppose a firm's short-run production function is given by Q = F(L) = 4L. If the wage rate is $12 and the firm has sunk costs of $300, then the firm's variable cost function isA. VC(Q) = $12Q
B. VC(L) = $3L
C. VC(Q) = $3Q
D. VC(Q) = $300 + $12Q
11. Suppose the marginal rate of technical substitution for labor with capital is 5, the marginal
product of labor is 8 and the marginal product of capital is 4. Assuming the law of diminishing marginal product applies to both labor and capital, this firm
A. Is minimizing the cost of producing its output
B. Could reduce costs by substituting workers with capital
C. Could reduce costs by substituting capital with workers
D. Could reduce the cost of producing the output by reducing workers and capital by the same
Proportion
Explanation / Answer
10. Suppose a firm's short-run production function is given by Q = F(L) = 4L. If the wage rate is $12 and the firm has sunk costs of $300, then the firm's variable cost function is
A. VC(Q) = $12Q
This would be true because the $300 does not come into play seeing as is not variable (thats what sunk cost means - there is no way to change it)
B. VC(L) = $3L
C. VC(Q) = $3Q
D. VC(Q) = $300 + $12Q
11. Suppose the marginal rate of technical substitution for labor with capital is 5, the marginal
product of labor is 8 and the marginal product of capital is 4. Assuming the law of diminishing marginal product applies to both labor and capital, this firm
A. Is minimizing the cost of producing its output
B. Could reduce costs by substituting workers with capital
C. Could reduce costs by substituting capital with workers
D. Could reduce the cost of producing the output by reducing workers and capital by the same
Proportion
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