Suppose a Firm Hires Both Labor (L) and Capital (C)

question 37

Multiple Choice

Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions.The price of labor is PL, and that of capital is PC.The marginal product of labor is MPL, and that of capital is MPC.The firm sells its product competitively at a price of PX.If MPC / PC > MPL / PL, the firm

• A)may be maximizing profits, but it is not minimizing costs.
• B)may be minimizing costs, but it is not maximizing profits.
• C)is neither minimizing costs nor maximizing profits.
• D)is minimizing costs and maximizing profits.

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Definitions:

SSE

Sum of Squared Errors; a measure of the discrepancy between the data and an estimation model, representing the total deviation of the response values from the fit values.

Null Hypothesis

A hypothesis in statistical inference and testing that suggests no significant difference or effect, intending for it to be challenged by the alternative hypothesis.

Multiple Regression Model

A statistical technique that models the relationship between a dependent variable and two or more independent variables.

Independent Variables

Variables in an experiment or model that are manipulated to observe their effect on dependent variables.