Consider a Firm That Uses Only Labour and Capital

question 51

Multiple Choice

Consider a firm that uses only labour and capital.At the present use of labour and capital,the MP of labour is two times the MP of capital,and the price of labour is two times the price of capital.In order to minimize its costs,the firm should

• A)substitute capital for labour until their marginal products are equal.
• B)decrease both capital and labour.
• C)decrease capital and increase labour.
• D)increase both labour and capital.
• E)not alter its present factor mix.

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Definitions:

Compounded Quarterly

The process where interest is added to the principal sum of a deposit or loan every three months, leading to interest earnings on interest.

RRSP

RRSP stands for Registered Retirement Savings Plan, which is a savings plan sponsored by the Canadian government that allows individuals to save for retirement on a tax-deferred basis.

RRIF

A Registered Retirement Income Fund, a tax-deferred retirement plan in Canada designed to provide income to beneficiaries.

Nominal Rate

The stated interest rate of a financial instrument or loan, not accounting for compounding or inflation.