Suppose a Firm Is Using Labor and Capital and Obtaining

question 13

Multiple Choice

Suppose a firm is using labor and capital and obtaining the maximum possible output for a given total cost.If the price of labor increases, all other things unchanged, then the firm will:

• A) shift funds out of labor into capital.
• B) adjust factor utilization until the ratios of marginal product to price are equal for the two factors.
• C) hire less labor, which will result in an increase in labor's marginal product, and hire more capital, leading to a fall in the marginal product of capital.
• D) do all of the above.