Suppose That a Firm Has a Cobb-Douglas Production Function for Its

question 80

Multiple Choice

Suppose that a firm has a Cobb-Douglas production function for its inputs of capital and labor. The firm is currently paying $10 per labor hour and $5 per machine hour. The firm is currently at an efficient production level, employing an equal number of machines and workers. Suppose the cost of labor were to double and the cost of capital were to fall by half. If the firm wanted to produce the previous level of output for the previous cost, the firm would hire:

• A)more labor and less capital.
• B)less labor and more capital.
• C)equal amounts of labor and capital.
• D)twice as much labor as capital.

---

Definitions:

Performance Efficiency

An input measure of resource cost associated with goal accomplishment.

Resource Cost

The total expense incurred in order to utilize a resource, including acquisition, maintenance, and any associated operational costs.

Goal Accomplishment

involves successfully achieving predetermined objectives or targets set by an individual or organization.

Productivity

The efficiency at which goods or services are produced, often measured as the amount of output per unit of input.