When a Cost- Minimizing Firm Is Faced with an Increase

question 104

Multiple Choice

When a cost- minimizing firm is faced with an increase in the relative price of labour, it adjusts its factor usage so as to

• A) increase the marginal product of capital relative to the marginal product of labour.
• B) use more of both capital and labour per unit of output.
• C) increase the marginal product of labour relative to the marginal product of capital.
• D) use more labour per unit of output than before.
• E) maintain the previous usage of labour.

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Definitions:

Industrialization

The process by which an economy is transformed from primarily agricultural to one based on the manufacturing of goods, involving an increase in production, technological innovation, and infrastructure.

Tariffs

Taxes imposed by a government on imported or exported goods.

Foreign Products

Goods or services that are produced in one country and sold to consumers in other countries.

Gross Domestic Product

The total value of all goods and services produced within a country in a specific time period, used as a broad measure of economic activity and health.