Suppose a Firm Is Producing 2,475 Units of Output by Hiring

question 57

Multiple Choice

Suppose a firm is producing 2,475 units of output by hiring 50 workers (W = $20 per hour) and 25 units of capital (R = $10 per hour) . The marginal product of labor and marginal product of capital are 40 and 25, respectively. Is the firm minimizing the cost of producing 2,475 units of output?

• A) Yes, the ratio of the number of workers to the wage equals the ratio of the number of units of capital to the rental rate.
• B) No, the firm should use more labor and less capital.
• C) No, the firm should use more capital and less labor.
• D) No, the firm should use more of both labor and capital.

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Definitions:

Maintenance Agreement

A contractual agreement where one party agrees to maintain assets owned by another party, often including repairs and replacements.

Financing Profit

The profit generated from the difference between the cost of financing sources (such as loans) and the income generated from their use.

Inventory Cost

The total cost associated with obtaining, storing, and managing inventory, including purchase costs, storage costs, and any other expenses related to maintaining or handling inventory.

Leased Lathe

A contract arrangement where a lathe, a machine tool used for shaping metal or wood, is rented for use over a specific time period.