A Firm Uses Two Factors of Production

question 105

Multiple Choice

A firm uses two factors of production. Irrespective of how much of each factor is used, both factors always have positive marginal products which imply that:

• A) isoquants are relevant only in the long run.
• B) isoquants have negative slope.
• C) isoquants are convex.
• D) isoquants can become vertical or horizontal.
• E) none of the above

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Definitions:

Contribution Margin Ratio

A financial metric that measures how a product's selling price covers variable costs, expressed as a percentage of sales revenue.

Unit Contribution Margin

Unit contribution margin is the difference between the selling price of a product and its variable costs, indicating how much each unit sold contributes to covering fixed expenses and generating profit.

Sales

The total revenue generated from goods or services sold by a company over a specified period.

Pretax Income

The amount of income earned by a business before any taxes have been deducted.