dse 2006

[seema]

Consider a firm that produces a single good using labour and capital. Let C, Q, L, K, w, r and p denote cost of prodn, output, lb inpt, capital inpt, wage rate, price of capital and price of output. An example of cost function for the firm is
a) C=wL+rK
b) C= min{wL,rK}
c) C= pQ/[wL+rK]
d) C= Q (wr)^1/2
ans is d. how?

[duck]

Hi Seema.. :)

Cost is a function of output(Q) and factor prices ( w, r).
Thats y, the answer is "d".

[Sanjana]

Hey but shouldn't it be option A?

[duck]

Hi Sanjana.. :)

option(a) is the iso-cost line.
Cost function cannot have "L"/"K" in it.
Its a funtion of output(q) and input prices "w"/"r".