Let a Firm Use Labor $( L )$ And Capital $( K )$

question 26

Multiple Choice

. Let a firm use labor $( L )$ and capital $( K )$ as its only inputs to produce an output, $Q$ . The cost of labor is $w = \$ 5$ per labor hour and the cost of capital is $r = \$ 15$ per machine hour. When capital is measured on the vertical axis and labor on the horizontal axis, what is the slope of an isocost line for this firm?

• A) \(- 3\).
• B) \(- 5\).
• C) \(- 15\).
• D) \(- 1 / 3\).

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Definitions:

Net Working Capital

Net Working Capital is a measure of a company's short-term financial health, calculated as current assets minus current liabilities.

Present Value

The contemporary valuation of future financial inflows or a lump sum, adjusted for a specific rate of return.

Rate of Return

A measure of the gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Net Working Capital

Net Working Capital is a financial metric that calculates the difference between a company's current assets and its current liabilities, indicating the company’s short-term financial health.