Suppose a Firm Is Using 100 Units of Labour and 50

question 10

Multiple Choice

Suppose a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day.The price of labour is $5 per unit and the price of capital is $2 per unit.The MPL equals 5 and the MPK equals 2.In this situation,the firm

• A)is minimizing its costs.
• B)should increase the use of both inputs.
• C)could lower its production costs by decreasing labour input and increasing capital input.
• D)could lower its production costs by increasing labour input and decreasing capital input.
• E)should decrease the use of both inputs.

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Definitions:

Proportional

A relationship where two quantities increase or decrease at the same rate, maintaining a constant ratio.

Regressive

Refers to a tax system where the tax rate decreases as the taxable amount increases, often placing a higher burden on lower-income earners.

Tax Incidence

The analysis of the effect of a particular tax on the distribution of economic welfare among entities, determining who ultimately bears the cost of the tax.

Burden

The load, duty, responsibility, or stress placed upon an individual or entity.