A Firm Wants to Minimize the Total Cost of Producing

question 35

Multiple Choice

A firm wants to minimize the total cost of producing 100 tons of dynamite. The firm uses two factors of production, chemicals and labor. The combination of chemicals and labor that minimizes production costs will be found where:

• A) the marginal products of chemicals and labor are equal.
• B) the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the marginal product of chemicals to the marginal product of labor.
• C) the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the price of chemicals to the wage rate.
• D) the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used.
• E) none of the above

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Definitions:

Residual Value

The projected sale price of an asset at the termination of its operational life.

Depreciation Expense

Apportioning the expense of a concrete asset across its serviceable life.

Useful Life

The estimated period over which an asset is expected to be usable by the owner.

Straight-Line Method

A depreciation method where an asset's cost is evenly spread across its useful life, resulting in equal depreciation expenses each period.