Given the Simple Production Function $\mathrm { Q } = 3 \mathrm {~K} + 4 \mathrm {~L}$

question 13

Multiple Choice

Given the simple production function $\mathrm { Q } = 3 \mathrm {~K} + 4 \mathrm {~L}$ , where $\mathrm { L }$ is the quantity of labor employed and $\mathrm { K }$ is the quantity of capital employed, assuming $\mathrm { K } = 2$ and $\mathrm { L } = 3$ , what would it mean if output was less than 18 ?

• A)The firm is out of business.
• B)The firm is not employing labor and capital efficiently.
• C)The production function was not specified correctly.
• D)Labor is less productive than capital.

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Definitions:

Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Price Level

A measure that reflects the average prices of goods and services in an economy at a given time.

Nominal GDP

The market value of all final goods and services produced in a country in a given period, measured in current prices.

GDP Deflator

An index measuring the change in prices of all new, domestically produced goods and services in an economy.