Question

Suppose a firm's production function is Q = 4K⁰·⁵ L⁰·⁵. Its level of capital is fixed at 1 unit, the price of labor is PL = 32 per unit, and the price of capital is PK = 400 per unit. Given this information, what is its total fixed cost function?

Answer 1

The total fixed cost function for the firm is 0.

Step-by-step explanation:

The total fixed cost function can be determined by finding the fixed cost when no labor is used. In this case, since the level of capital is fixed at 1 unit, the production function becomes:

Q = 4(1)0.5 L0.5

By setting L = 0, we can find the total fixed cost as:

Total fixed cost = Q - variable cost = Q - (PL * L)

Total fixed cost = 4(1)0.5 * 0 - (32 * 0) = 0

Therefore, the total fixed cost function is 0.