Suppose Capital and Labor Are Perfect Substitutes in a Long-Run

question 12

Multiple Choice

Suppose capital and labor are perfect substitutes in a long-run production process. If labor costs $15 per hour and the rental rate of capital is $20 per hour, what can we say about the profit maximizing choice of labor and capital inputs?

• A) We will only use labor in the production process.
• B) We will only use capital in the production process.
• C) We will use equal amounts of capital and labor.
• D) The optimal capital-labor ratio is 0.75-to-1.

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Definitions:

Zimbardo

Refers to Philip Zimbardo, a psychologist known for conducting the Stanford Prison Experiment, which explored the effects of perceived power and authority on behavior.

Input Variables

Factors or conditions that are manipulated or controlled in an experiment or study to observe their effect on the outcome.

Output Variables

Variables that measure the effects or results of a process, experiment, or intervention, often used to assess performance or effectiveness.

Overcrowding

A situation where too many individuals occupy a limited space, leading to potential stress, discomfort, and conflict.