Suppose a Firm Employs Two Inputs, X and Y, and That

question 65

Multiple Choice

Suppose a firm employs two inputs, X and Y, and that at their current levels of use MPX/PX >
MPY/PY. To minimize the cost of production, the firm should hire

• A) more input Y only if its price falls.
• B) more input Y and less input X.
• C) more input X only if its price decreases.
• D) more input X only if its price increases.
• E) more input X and less input Y.

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Definitions:

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Salespeople Salaries

The total amount paid to employees who are responsible for selling a company's products or services.

Variable Costing

An accounting method that only considers variable costs for product costing, excluding fixed manufacturing overhead.

Absorption Costing

A costing method that includes all manufacturing costs — direct materials, direct labor, and both variable and fixed manufacturing overhead — in the cost of a product.