Business, 21.03.2020 08:02 Zaviahector1124

"Adam's Apples" produces apple cider using labor (L) and apples (A) according to the Cobb-Douglas production function Q = F(L, A) = 4L^3/8 A^1/8. The price of apples is pA = 1 and the price of labor is w = 3. Adam's Apples also has a fixed cost for farm buildings, FC = 100.
Required:
1. If Adam's Apples wants to produce 10 barrels of apple cider, Q=10, what is its lowest possible total cost? (Roadmap: (1) Determine the optimal input choice (L, A) by tangency condition, MRT SLA (L, A) = w/PA and production requirement 10 = F(L, A). (2) Variable costs are then found by wl* + PAA*. (3) Total cost is sum of variable and fixed costs.)
2. Determine Adam's Apples' Average Cost function, AC(Q), and marginal cost function, MC(Q).

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"Adam's Apples" produces apple cider using labor (L) and apples (A) according to the Cobb-Douglas pr...