Consider a House- Construction Firm with Fixed Capital

question 92

Multiple Choice

Consider a house- construction firm with fixed capital. The firm can build 8 houses per year with 16 workers and 8.8 houses per year with 17 workers. If it is currently building 8.8 houses per year, which of the following is true?

• A) The firm has not yet reached the point of diminishing marginal productivity.
• B) The firm has already passed the point of diminishing marginal productivity.
• C) Average product is at a maximum with 16 workers.
• D) Average product is at a maximum with 17 workers.
• E) The marginal product is below the average product.

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Definitions:

Average Price Level

An economic indicator that shows the overall level of prices for goods and services in an economy over a period.

Value of Money

The purchasing power of money, indicating the amount of goods or services that one unit of money can buy, subject to change due to inflation or deflation.

Interest Rate

The percentage of an amount of money which is charged for its use per a certain period, often annually, by a lender to a borrower.

Medium of Exchange

A medium of exchange is anything widely accepted as a form of payment, making trade easier by eliminating the need for a coincidence of wants.