Suppose That a Firm's Production Function of Output $Q$ Is a Function of Only Two Inputs, Labor (L) and a Function

question 38

Multiple Choice

Suppose that a firm's production function of output $Q$ is a function of only two inputs, labor (L) and capital $( K )$ and can be written $Q = 25 L K$ with marginal products $M P _ { L } = 25 K$ and $M P _ { K } =$ $25 L$ . Letting the wage rate for labor be $w$ and the rental rate of capital be $r$ , the equation for the firm's demand for labor would be:

• A) \(L = \sqrt { \frac { w Q } { 25 r } }\)
• B) \(L = \sqrt { \frac { 25 r } { w Q } }\)
• C) \(L = \sqrt { \frac { r Q } { 25 w } }\)
• D) \(L = \sqrt { \frac { 25 w } { r Q } }\)

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Definitions:

Retention Ratio

The percentage of net income that is retained in the business rather than paid out as dividends; synonymous with Plowback Ratio.

Cash Dividends

Cash dividends refer to the distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders in the form of cash.

Selling and Administrative Expenses

Costs associated with the daily operations of a business that are not directly linked to producing the product or service but are necessary for selling and managing the business.

Plowback Ratio

A financial metric indicating the proportion of earnings a company decides to retain for reinvestment, rather than distributing as dividends.