Question

Suppose the short-run production function is q = 10 L. If the wage rate is $10 per unit of labor and fixed cost is $10,000, what is the firm's cost equation?

A)	10,000 + q

B)

10,000/q.

C)	10 +10,000q.

D)

10q + 10.

Answer 1

Given that the short run production function is q = 10L.

So, the amount of labour hired for producing q units of output is given by:
L = q / 10

Now, as the wage rate is 'w'. The cost of hiring L units of labor is:

= wL

=$10 x q / 10

= $q

So, $q is the variable cost.

Now, the fixed cost that is hired irrespective of the number of labor is $10,000.

We know that the total cost function for the firm is obtained by adding the fixed cost and the variable cost. It will be measured in dollars.

Ans. A) 10,000 + q