Suppose a Firm Is Using 1500 Units of Labour and 20

question 49

Multiple Choice

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore.The price of labour is $50 per unit and the price of capital is $800 per unit.The MPL equals 25 and the MPK equals 400.In this situation,

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

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Definitions:

Cost Per Equivalent Unit

A calculation used in process costing that determines the cost assigned to each unit produced, taking into account partially completed units.

Conversion Costs

Costs incurred to convert raw materials into finished products, typically including labor and overhead.

FIFO Method

An inventory valuation method that assumes the first items placed into inventory are the first ones sold, standing for "First-In, First-Out".

Equivalent Units

A concept in cost accounting used to express the amount of work done on partially finished goods in terms of fully completed units.