A Firm Combines Two Resources, a and B, to Produce

question 68

Multiple Choice

A firm combines two resources, A and B, to produce an output, Q.Their respective marginal revenue products are $30 and $21.A costs $15 a unit and B $7 a unit.To reduce the cost of Q,

• A)more B and less A should be used.
• B)more A and less B should be used.
• C)more of both resources should be used.
• D)less of both resources should be used.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the ratio of fixed costs to variable costs.

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted, indicating how much contributes to the fixed costs and profits.

Scatter Diagram

A graph used in statistics to visually display and assess the possible relationship between two numerical variables.

Visual Line Fit

A method in statistical analysis where a line is visually fitted to a set of data points to assess a potential relationship.