A Firm Purchases a Factor of Production in a Competitive

question 125

Multiple Choice

A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm:

• A) can increase profit by reducing the employment of the factor of production.
• B) is now maximizing profit.
• C) should not use this factor of production because it has no potential in generating a profit.
• D) can increase profit by expanding the employment of the factor of production.

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Definitions:

Related Party

Individuals or entities that are connected by relationships or other associations that might influence the financial transactions between them.

Loss Disallowed

A loss that cannot be deducted from taxable income due to tax rules or limitations.

Related Parties

Individuals or entities that have a close association or relationship, often in a business context, which might influence transactions or dealings between them.

Shareholder

An individual or entity that owns shares in a corporation and is entitled to a portion of its profits and assets.