A Firm Is Currently Using Two Inputs: Labor and Capital

question 29

Multiple Choice

A firm is currently using two inputs: labor and capital.It rents equipment for $1,000,which produces a value of the marginal product of $5,000.It hires workers at $10 per hour,who produce a value of the marginal product of $100.The wages of workers rise by 20 percent and the rental price of capital increases by 25 percent.The firm should hire ________ labor and ________ capital.

• A) more; more
• B) more; less
• C) the same amount of; the same amount of
• D) less; more
• E) less; less

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Definitions:

External User

External users are individuals or entities outside a company who use financial statements to make decisions about the company, such as investors and creditors.

Business Enterprise

An organizational entity involved in commercial, industrial, or professional activities with the goal of generating economic returns.

Information Management

The process of collecting, storing, managing, and distributing information in an efficient and effective manner to support business processes.

Legal Entity

An organization that has legal rights and obligations, such as a corporation, partnership, or sole proprietorship.