Consider a Firm That Uses Only Labour and Capital as Inputs

question 99

Multiple Choice

Consider a firm that uses only labour and capital as inputs. At the present use of labour and capital, the MP of labour is four times the MP of capital, and the price of labour is twice the price of capital. In order to minimize its costs, the firm should

• A) decrease capital and increase labour.
• B) substitute capital for labour until their marginal products are equal.
• C) stay at its present factor mix.
• D) decrease both capital and labour.
• E) increase both labour and capital.

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Definitions:

Production Lead Time

The total time taken from the beginning of production to the product's completion and readiness for delivery.

Order-Level Costs

Expenses directly related to a specific order, including purchasing, handling, and setup costs.

Suppliers

Businesses or individuals that provide goods or services to another entity under terms specified in a contract or agreement.

Backflush Costing

A streamlined cost accounting method that assigns costs to products after they are produced, based on the finished goods output.