Suppose a firm's short-run production function is given by Q = 3?L, where L represents the number of hours of labor employed. The firm has a sunk cost of $500 and the wage rate is $18 per hour. What is the firm's short-run cost function?
What will be an ideal response?
Solve the production function for L:
Q = 3?L
Q2 = 9L
Q2/9 = L
The short-run cost function is thus C(Q) = 500 + 18(Q2/9) = 500 + 2Q2.
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