Suppose That Capital Costs $50 Per Unit and Labour Costs

question 132

Multiple Choice

Suppose that capital costs $50 per unit and labour costs $20 per unit.If the marginal product of capital is 100 and the marginal product of labour is 30,a cost-minimizing firm should

• A)employ more of both capital and labour.
• B)employ less of both capital and labour.
• C)employ more capital and less labour.
• D)employ less capital and more labour.
• E)not change its current factor use.

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Definitions:

Interest Rates

The cost of borrowing money or the reward for saving, typically expressed as a percentage of the principal.

Premium

The amount by which the price of a financial instrument or insurance policy exceeds its face value or the cost above the normal price.

Modified Duration

A measure indicating the sensitivity of a bond's price to changes in interest rates, estimating the percentage price change for a parallel shift in yield curves.