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) (b) 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) (c) 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?