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Author Question: Consider a general Cobb-Douglas production function q = ALaKb where A, a and b are positive ... (Read 33 times)

Shelles

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on: Jul 1, 2018
Consider a general Cobb-Douglas production function q = ALaKb
 
  where A, a and b are positive constants.
  Using this production function, derive the short-run cost function for a fixed capital stock, K0, wage rate w, and capital rental rate r.

Question 2

Assuming mustard and burgers are complements, a decline in the price of burgers will
 
  A) decrease the demand for burgers.
  B) decrease in the quantity demanded of burgers.
  C) increase the demand for mustard.
  D) decrease the demand for mustard.


maya.nigrin17@yahoo.com

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Reply #1 on: Jul 1, 2018
Answer to Question 1

The production function is
q = ALaKb
Rearrange to get
La = (q/AKb)
L = (q/AKb)1/a
Substitute into the costs
C(q) = wL + rK = w(q/AK0b)1/a + rK0

Answer to Question 2

C


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