Answer to Question #282468 in Macroeconomics for ABEX

Question

8. Suppose the production function for a newly discovered product through

research is given by Y = 100(L-F) where Y = output of the new product, L = labor input, and F = fixed amount of labor input required

to invent the idea (cost incurred before the first unit of output can be produced). Assume that there is no production if L < F ; and each

unit of labor L costs a wage rate w.

(a) Find the cost function C(y) that represents the minimum cost

required to produce Y units of output.

(b) Given a price P which the firm faces for each unit of output produced, show that the firm cannot make profit and operate in perfectly competitive market settings.

Answer 1

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