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:

Qualitative Information

Information that is descriptive and subjective, often relating to opinions, judgments, or non-measurable factors.

Planning Purposes

The use of forecasts, targets, and models to guide strategic decision-making and to set goals for future organizational performance.

Production Costs

Expenses associated with the manufacture of products, including raw materials, labor, and overhead.

Period Cost

Expenses that are not tied to the production process and are therefore expensed in the period they are incurred, such as selling and administrative expenses.