A Firm Is Using 500 Units of Labor and 100

question 97

Multiple Choice

A firm is using 500 units of labor and 100 units of capital to produce 100 units of output. The price of labor is $5 per unit and the price of capital is $20 per unit. At these input levels, another unit of labor adds 50 units of output, while another unit of capital adds 400 units of output. The firm could increase output by

• A) 10 units by spending $1 more on capital and $1 less on labor.
• B) 10 units by spending $1 more on labor and $1 less on capital.
• C) 350 units by spending $1 more on capital and $1 less on labor.
• D) 350 units by spending $1 more on labor and $1 less on capital.
• E) none of the above

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