For Figure 6

question 124

Multiple Choice

For Figure 6.9 in the book, MRTS = K/(4L) with capital (K) on the vertical axis of the isoquant map. Suppose L=100 hours and K=400 machine hours at the current level of output. How much additional labor is required to maintain output if we reduce capital by one machine hour?

• A) One hour
• B) Two hours
• C) Three hours
• D) Four hours

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Definitions:

Unlevered Cost

The cost of an investment that does not take into account the effect of financial leverage, or borrowing.

Debt-Equity Ratio

The debt-equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

Pre-Tax Cost

The expense or cost that a company incurs which is calculated before any taxes are applied.

Return on Assets

A financial metric that indicates how profitable a company is relative to its total assets, demonstrating how efficient a company is at using its assets to generate earnings.