A Firm Combines Two Resources, a and B, to Produce

question 295

Multiple Choice

A firm combines two resources, A and B, to produce an output, Q. Their respective marginal revenue products are $30 and $21. A costs $15 a unit and B $7 a unit. To reduce the cost of Q,

• A)more B and less A should be used.
• B)more A and less B should be used.
• C)more of both resources should be used.
• D)less of both resources should be used.

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Definitions:

Index Model

A model of stock returns using a market index such as the S&P 500 to represent common or systematic risk factors.

Covariance

A measure indicating the relationship between two variables and how they move together or apart from each other, used in finance to measure how the returns of two securities are related.

Factor Model

A way of decomposing the factors that influence a security’s rate of return into common (systematic) and firm-specific influences.

Firm-specific Events

Events that directly affect a company's operations, financial performance, or stock price, independent of the market or economic conditions.