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Suppose that a firm's production function is Q = K^2 x L^2 with MPL = 2K^2 xL and MPK = 2L^2K.The firm wants to produce an output level of 100 units. In the firm's home country, the wage rate is $20 per hour and rental on capital is $40 per hour. In contrast, at a foreign location the labour cost is $10 per hour while the capital cost is the same. Suppose that the firm needs to choose between producing the entire output at home or producing half the output at home and half abroad. Determine the total cost of production for each of these options. Which one should the firm choose?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92792270

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