A Firm Is Using 500 Units of Capital and 200

question 18

Multiple Choice

A firm is using 500 units of capital and 200 units of labor to produce 10,000 units of output. Capital costs $100 per unit and labor $20 per unit.The last unit of capital added 50 units of output,while the last unit of labor added 20 units of output.The firm

• A)is using the cost-minimizing combination of capital and labor.
• B)should use more of both inputs in equal proportions.
• C)should use less of both inputs in equal proportions.
• D)could produce the same level of output at a lower cost by using more capital and less labor.
• E)could produce the same output at a lower cost by using less capital and more labor.

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Definitions:

Prices

The amount of money required to purchase a good or service, reflecting the value placed on it by the market.

MU/P

The ratio of marginal utility (MU) to price (P), representing the additional satisfaction gained per unit of currency spent.

Less Of

A comparative term indicating a reduced quantity or degree of something.

Marginal Utility

The additional satisfaction or utility that a consumer receives from consuming an additional unit of a good or service.