Refer to the Following Graph

question 8

Multiple Choice

Refer to the following graph.The price of capital (r) is $20. Why wouldn't the firm choose to produce 5,000 units of output with the combination at A?

• A)At A,MRTS < 3/2.
• B)At A,MP_K / r > MP_L / w.
• C)At A,MP_L > MP_K.
• D)both a and b
• E)none of the above

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Definitions:

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Phantom Profits

Profits recorded in the accounting books but not actually realized through cash transactions, potentially leading to a misleading financial condition.

FIFO Costing Assumption

A method used in accounting that assumes the first items of inventory purchased are the first ones sold.

Specific Identification Method

The specific identification method is an approach to inventory valuation that tracks the cost of individual items or groups of similar items.