Suppose a Firm with a Production Function Q = KL

question 149

Multiple Choice

Suppose a firm with a production function Q = KL (where MP_L = K and MP_K = L) is producing 125 units of output by using 5 workers and 25 units of capital. The wage rate (W) per worker is $10 and the rental per unit of capital (R) is $2. If it decreases output to 45 units, long-run average total cost _____ at 125 units of output to _____ at 45 units of output.

• A) rises from $1.80; $2
• B) rises from $0.80; $1.33
• C) falls from $0.80; $0.60
• D) falls from $1.80; $1.15

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Definitions:

Capital Surplus

A balance sheet account; the portion of shareholders’ contributions exceeding the par or stated value of shares. Also called additional paid in capital.

Derivative Action

A lawsuit brought by shareholders on behalf of a corporation against third parties, typically involving claims of mismanagement or abuse by corporate officers.

Independent Directors

Board members who are not part of a company's day-to-day operations, ensuring unbiased oversight and reducing conflicts of interest.

Zapata Test

A legal standard used to determine the independence and good faith of a special litigation committee's investigation and recommendations in corporate litigation.