Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the total fixed cost of producing 80 units of output?

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Business

Braeden Webb

22 January, 07:16

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the total fixed cost of producing 80 units of output?

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Erika · Answer 1

Fixed costs = $200

Explanation:

Giving the following information:

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit.

In this case, labor is a variable cost, the more you produce, the bigger it gets (total variable costs, unitary remains the same).

So, our only fixed cost is capital. We know that in a short run capital equals 8 units

Fixed costs = $25*8 = 200