Hello, Can you help me?
A film studio in Hollywood produces movies according to the function (assume studios can also produce fractions of movies…think of half a movie as a B-movie or so.)
q = F (K, L) = (2/100)K0.5L0.5.
In the short run, capital (studios, gear) is fixed at a level of 100. It costs $40 (in thousands) to rent a unit of capital and $10 (in thousands) to hire a unit of labor (actors, stuntmen, camera crew etc.).
(a) What is the fixed cost? What is the variable cost as a function of output q?1 (2)1Hint: You know what K is. From the production function, you can now determine what L has to be as a function
of output q. Once you know what L(q) is, it should be easy to find variable cost.
What is the marginal cost (MC) and the average cost (AC) of a movie? What is the average variable cost and average fixed cost? (2)
Where do the average and marginal cost curves intersect? What is the derivative of the AC curve and what value does it take at the intersection? What does it tell you about minimum average cost? (2)
Long-run costs (8 points, 2 Bonus Points)
The same Hollywood studio is doing its planning for the next year and can choose capital and labor.
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