A Firm with a Production Function Q = KL (Where

question 1

Multiple Choice

A firm with a production function Q = KL (where K is units of capital and L is units of labor) has an expansion path that is given by K = 2L. The wage rate (W) is $20 and the rental on capital is $10. Assuming that the firm is using the optimal mix of inputs for any given output level, the quantity of output using two units of labor is ____.

• A) 32
• B) 18
• C) 8
• D) 2

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Definitions:

Information Difficulties

Challenges encountered in obtaining, processing, or understanding necessary information, often affecting decision-making processes.

Government Intervention

Involves the actions taken by government or public authorities to influence the workings of the market economy.

Adverse Selection Problem

A situation in markets where buyers and sellers have asymmetric information, leading to high-quality goods or services being ousted by lower-quality ones.