Describe the shape of the average total cost function

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Reference no: EM1363180

Given that the firm X produces output according to this equation: Q = L0.5K0.5 and that the capital ‘K' is fixed,

a. Derive the expression of the total cost function in terms of w, r, Q and K, where ‘w' and ‘r' are the costs per unit of labor and capital respectively. (Hint: Total Cost = wL + rK). Clearly show each step.

b. i) what is the average total cost?

ii) What is the quantity at which the average total cost is at its minimum point? Show proper working.

iii) Determine the shape of the average total cost function and also label the minimum point on the curve. (Hint: Use derivates)

Reference no: EM1363180

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