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Derive the total, average and marginal long run cost functions for the production function F (L, K) = K + L, if input prices are wk = 3 and wL = 5
Derive the total, average and marginal long run cost functions for the production function F
(L, K) = K + L, if input prices are wk = 3 and wL = 5.
Expert Solution
Production function = F(L, K)= K + L
the Marginal rate of Technical Substituiton(MRTS) = MPL/MPk = 1 (MP = Marginal Product )
wL/wK = 5/3 as, MPL/MPk < wL/wK ( wL , wK are the input prices)
Hence, the firm will make use of capital(c) and they will avoid the usage of labour(L).
C= wKK
let us now take from the production function:
Q = K
1 a) Total long run cost C = 3Q
1 b) Average long run cost TC/Q = 3Q/Q = 3
1 c) Marginal long run cost dTC/dQ =3
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