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?

d. If K is increased to a fixed 16 units, at what level of Q is ATC minimized, and what are the values of ATC and of MC at this level of output?

Answer rating: 100% (QA)

a Short run production function Q 2KL Q 8L Where K is constrai... View the full answer