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:

SEC

The U.S. Securities and Exchange Commission, a federal agency responsible for enforcing federal securities laws and regulating the securities industry, stock and options exchanges.

Stock Exchange

A marketplace where securities, such as stocks and bonds, are bought and sold.

Capital Markets

Financial markets where long-term debt or equity-backed securities are bought and sold, facilitating the raising of capital and investment.

Loss Contingency

A potential financial loss that might occur in the future, dependent on the outcome of a specific event, recorded in accounting if it is probable and the amount can be reasonably estimated.