Suppose That for a Particular Firm the Only Variable Input

question 246

Multiple Choice

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?

• A)$40
• B)$60
• C)$80
• D)$100

Understand the concept of equivalent ratios and how to reduce them to their smallest terms.

Apply principles of proportions to solve for unknown quantities.

Understand and apply the concept of lowest terms in ratios.

Calculate the ratios of real-world quantities, including financial and material allocations.

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Definitions:

Substitution Effect

The economic principle that as the price of one good increases, consumers will replace it with a cheaper alternative, holding utility constant.

Price Change

A variation in the cost of goods or services over time, which can result from factors like supply and demand, inflation, or market dynamics.

Income

The amount of money received on a regular basis from work, property, investments, or government benefits.

Utility Function

A mathematical representation of how consumers derive satisfaction from goods and services, assigning numerical values to different bundles of goods.