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.

---

Definitions:

Free Trade Zones

Designated areas within a country where goods can be imported, handled, manufactured, and exported without direct intervention from customs authorities.

Mercosur

A South American trade bloc established to promote free trade and fluid movement of goods, people, and currency among its member countries.

Trans-Pacific Partnership

A trade agreement among multiple Pacific Rim countries aimed at deepening economic ties, reducing tariffs, and fostering trade to boost growth.

Infant Industry Argument

A protective economic theory suggesting that emerging domestic industries should be shielded from foreign competition until they become competitive.