A Firm Is Currently Producing 200 Units of Output Using

question 22

Multiple Choice

A firm is currently producing 200 units of output using 60 hours of labour and 80 hours of capital. The marginal product of labour is 12 units of output per hour, and the marginal product of capital is 15 units of output per hour. If the wage rate is $6 per hour and the rental rate of capital is $3 per hour, then:

• A)the firm should use more capital and less labour.
• B)the firm should use more labour and less capital.
• C)we cannot determine if the firm's use of inputs is efficient without more information.
• D)the firm's use of labour and capital is cost- efficient.

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Definitions:

Direct Materials

Raw materials that can be directly attributed to the production of specific goods or services in manufacturing.

Direct Labor

The wages and benefits paid to workers who are directly involved in the production of goods or services.

Prime Costs

The combined costs of direct materials and direct labor that are directly involved in the production of goods.

Direct Materials Costs

Costs that are directly traceable to the production of specific goods or services, such as raw materials used.