Draw two cost functions on the graph

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Reference no: EM13105740

Production function f(x₁, x₂) = x₁x₂. The prices for the inputs are 2 and 8, respectively.

a. If x₂ is fixed at x₂=10 derive the short-run cost function of the firm as a function of Y - output level, and the prices for inputs given above. (Hint: with 1 input there is no cost minimization.)

b. Now suppose that x₂ is also free to vary. Derive the demands for the inputs and the long-run cost function of the firm.

c. What value of Y makes the value of the short-run (in a) and long-run (in b) cost functions equal. Draw the two cost functions on the graph. Do they cross? Which one lies higher?

Reference no: EM13105740

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