What is the total cost of producing 80 units of output?¬†Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit.
A. $525 B. $200 C. $225 D. $25 E. none of the above
Capital is defined as the money it takes to make a business run. In order to maintain a business, capital is needed to pay for the supplies, labor and materials needed to run the business. In this word problem, the total cost is wanted to know how much it costs for capital that is needed with the labor costs. In order to solve this word problem, you would need to multiply two times the capital and then multiply that number times the labor costs.
In this problem, the capital is twenty-five dollars per unit. Eight units are completed during a short run. It also costs five dollars for the labor per unit. To solve this, you need to use the formula to get the total cost of 80 units.