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Soundscape Enterprises manufactures Sonoblast, a device that produces a high-pitched reminder to telemarketers that they have once again disturbed you just when you were sitting 1⁄2 down to dinner. The production function for Sonoblasts is given by the formula Q = 2KL where Q is in units of output per period, K is in machine-weeks per period, and L is in labour- weeks per period. The machine rental rate r is $512 per machine-week and the wage rate w is $128 per labour-week. In the short run, K is fixed at 4 machine-weeks per period. a. Give the formulas for the short-run production function and the marginal product of labour (MPL) function. b. Express variable cost (VC), total cost (TC), and marginal cost (MC) as functions of L and as functions of Q; and average variable cost (AVC), average fixed cost (AFC) and average total cost (ATC) as functions of Q. c. At what level of Q is ATC minimized? What are the values of ATC and of MC at this level of output?

Business Economics, Economics

  • Category:- Business Economics
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