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

question 60

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 $M P _ { K } =$ 25L. Let the wage rate for labor be $w = 1$ and the rental rate of capital be $r = 1$ . If the firm produces 100 units of output, how many units of labor will it use?

• A)1
• B)2
• C)3
• D)4

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Definitions:

Nonexcludable

A characteristic of a good or service that prevents the owner or provider from excluding individuals from using it once it has been provided.

Marginal Private Benefit

The additional benefit received by a consumer or producer from consuming or producing one more unit of a good or service.

Marginal Social Cost

The total cost to society of producing an additional unit of a good, including both the private costs borne by the producer and any external costs inflicted on others.

Social Optimum

The most efficient allocation of resources in a society, achieving the best outcomes for social welfare.