Question

Company A uses 3 inputs (x₁,x₂,x₃) to produce output Q. Nothing is produced unless some amount of input X₃ is utilized. At the current level of X₃, the output Q is produced according to the production function

Q = x₁^1/2x₂^1/2

Denote the input prices by (W₁,W₂,W₃) and assume the level of X₃ cannot be varied in the time period under consideration but that X1 and X₂ can be varied to whatever levels the firm desires.

1. Derive this firm’s total cost equation.
2. Derive and accurately graph this firm’s marginal and average cost curves.

Answer 1