If the Marginal Physical Product of More Labor Is Twice

question 124

Multiple Choice

If the marginal physical product of more labor is twice as high as the marginal physical product of more machinery, a profit-maximizing firm will

• A) reduce the labor used and increase the machinery used if labor costs half as much as machinery.
• B) reduce the labor used and increase the machinery used if labor and machinery cost the same amount.
• C) reduce the labor used and increase the machinery used only if labor costs more than twice as much as machinery.
• D) reduce the labor used and increase the machinery used only if labor costs exactly twice as much as machinery.

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Definitions:

Gross Method

An accounting approach for recording purchases at the invoice’s gross amount without deducting any cash discounts for early payment.

Merchandise

Goods bought and sold in the course of business operations.

Periodic Inventory System

An accounting system that records inventory purchases during the accounting period but waits until the end of the period to adjust the inventory balances and record cost of goods sold.

Gross Method

An accounting practice for recording the full invoice amount of a sale without deducting any discounts offered.