Suppose That a Firm Is Using 100 Units of Labour

question 103

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 $10 per unit and the price of capital is $5 per unit. The MPL equals 2 and the MPK equals 5. In this situation,

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

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Definitions:

Wage Rate

The standardized amount of compensation an employee receives from an employer in exchange for their labor, typically expressed per hour or year.

Firefighters

Emergency responders trained to fight fires, conduct rescue operations, and mitigate other Hazards to protect life and property.

Infinitely Inelastic

Describes a situation where the demand for a good does not change regardless of changes in its price.

Economic Rents

Earnings in excess of the minimum amount required to keep a factor of production in its current use.