**Unformatted text preview: **a diagram representing total cost functions - both long run and short-run. Assume L and K are the only two inputs in the production function. 3) Backpacks are produced with a technology described by the following production function: b = min{L, 4K}. Assume that the price of labor is $2/unit and the price of kapital is $50/unit. Determine the long run total cost function for producing widgets efficiently. Note: K=kapital, L=labor and these are the only two inputs used in the production of backpacks. ANS: So we want L = 4K to cost minimize. So we know that: x = L and that x = 4K. Now we can get the input requirement functions: L*(x) = x and K*(x) = x/4. Now just use this information and the input prices in the definition of the cost function, lrtc=wL*(x) + rK*(x), to get: $lrtc = $2x+$50(x/ 4) = $14.50x. Econ 313.1 - Wissink - Fall 2004 PS#5 – XtraQ - ANSWERS L K x x 1 2 A B C D A C B D l r t c s r t c _ 1 s r t c _ 2 x _ 1 x _ 2 $...

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- Fall '06
- MASSON
- Economics, Microeconomics, $2, $50