What Is Not True When Thinking of the Firm's Objective

question 16

Multiple Choice

What is not true when thinking of the firm's objective as a cost-minimization problem rather than as a profit-maximization problem?

• A) The slope at any point on any isoquant reveals the marginal rate of technical substitution.
• B) The firm chooses to employ either labor or capital, depending on which factor is cheaper.
• C) The firm chooses a particular level of output to produce.
• D) The price of the output good does not enter the decision of how much labor or capital to employ once the total amount of output to produce has been determined.
• E) The firm will choose labor and capital inputs so that the marginal productivity of labor relative to the marginal productivity of capital equals the price of labor relative to the price of capital.

Explain the impact of market demand changes on firm profits in price-taker markets.

Understand the relationship between a firm’s average variable cost, average total cost, and market price in the context of operational decisions.

Identify the characteristics and implications of operating in a competitive price-taker market.

Understand the principles and characteristics of competitive price-taker markets.

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Definitions:

Tax Rates

The percentage at which an individual or corporation is taxed. The tax rate can vary by type of tax, income level, and jurisdiction.

Government Intervention

Actions taken by a government to influence or directly manage an economy, including regulations, subsidies, and fiscal policies.

Supply-Side Economics

An economic theory that argues economic growth can be most effectively created by lowering taxes and decreasing regulation, to incentivize investment and production.

Rational Expectationists

A group of economists who believe that individuals make predictions about future economic activities based on available information and in a rational manner.