Suppose That a Firm Is Using 100 Units of Labour

question 71

Multiple Choice

Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 fax machines 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) could lower its production costs by increasing labour input and decreasing capital input.
• C) should increase the use of both inputs.
• D) should decrease the use of both inputs.
• E) could lower its production costs by decreasing labour input and increasing capital input.

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Definitions:

Monte Carlo Analysis

A statistical technique that utilizes random sampling and variability to calculate risks and predict outcomes in a wide range of applications.

Computerized Model

A digital simulation that uses computer algorithms and programming to replicate the behavior or performance of a physical, financial, or biological system.

Monte Carlo Analysis

A statistical technique that uses random sampling and numerical experiments to estimate mathematical functions and simulate the behavior of complex systems.

Cumulative Probability Distribution

The accumulation of individual probabilities of a distribution.