Consider a firm that produces a single good using labor and capital. Let C, Q, L, K, w, r and p denote cost of production, level of output, labor, capital, wage rate, price of capi... Consider a firm that produces a single good using labor and capital. Let C, Q, L, K, w, r and p denote cost of production, level of output, labor, capital, wage rate, price of capital, and the price of output, respectively. Which of the following is an example of the cost function for this firm?
Understand the Problem
The question describes a firm producing a single good using labor and capital. It provides variables representing cost of production, level of output, labor, capital, wage rate, price of capital, and price of output. The question asks for an example of the cost function for the firm, which must be selected from the options given.
Answer
The final answer is (A) C=wL+rK
The correct answer is (A) C=wL+rK. This equation represents the total cost as the sum of labor costs (wage rate * labor) and capital costs (rental rate of capital * capital).
Answer for screen readers
The correct answer is (A) C=wL+rK. This equation represents the total cost as the sum of labor costs (wage rate * labor) and capital costs (rental rate of capital * capital).
More Information
A cost function shows the total cost of producing a given quantity of output and depends on the prices of inputs, such as labor and capital.
Tips
Students may confuse cost functions with production functions or revenue functions.
Sources
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