Suppose capital and labor are perfect substitutes resulting in a production function of q = K + L. That is, the isoquants are straight lines with a slope of -1. Derive the long-run total cost function TC = C(q) when the wage rate is w and the rental rate on capital is r
What will be an ideal response?
The firm will always hire the input that is cheapest. So, the function is
If w < r, TC = wq.
If w > r, TC = rq.
If w = r, either equation works.
You might also like to view...
An investor who sees through irrational optimism of a market could:
A. earn a profit by betting against what everyone else is doing. B. follow the lead of what most are doing, and earn consistent profits. C. earn a profit by being a "leader" among the "herd." D. be overwhelmed by market optimism and simply do what everyone else is doing.
Which of the following will occur once decisions makers fully adjusted to an increase in prices?
What will be an ideal response?
Each of the following would increase the demand for U.S. dollars, shifting the demand curve for dollars to the right, EXCEPT:
A. an increased preference for U.S.-made goods. B. an appreciation of foreign currencies relative to the U.S. dollar. C. an increase in the real interest rate on U.S. assets. D. an increase in real GDP abroad.
The natural rate of unemployment in the economy is determined by the Congress and the president of the country.
Answer the following statement true (T) or false (F)