A firm employs a production function Q = F(K, L) for which only two values of...

Question

Question

A firm employs a production function Q = F(K, L) for which only two values of K are possible, K, and K2. Its ATC curve when K

Answer 1

Answer #1

LAC will be the the envelope of minimum ATC curves.

There are two possible values of K namely K₁ and K₂

Let us calculate the output level where both ATCs are same.

Q²-4Q+6=Q²-8Q+18

4Q=12

Q=3

Now, let us see the range where ATC₁>ATC₂

Q²-4Q+6>Q²-8Q+18

4Q>12

Q>3

So, ATC₁ is higher than ATC₂ for Q>3, It means that LAC will be equal to ATC₂ for Q>3

Also ATC₂ is higher than ATC₁ for Q<3, It means that LAC will be equal to ATC₁ for Q<3

So, correct option is

Q²-4Q+6 when Q<3 and Q²-8Q+18 when Q>3

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Answer 2

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