If the Marginal Physical Product of More Labor Is Twice

question 124

Multiple Choice

If the marginal physical product of more labor is twice as high as the marginal physical product of more machinery, a profit-maximizing firm will

• A) reduce the labor used and increase the machinery used if labor costs half as much as machinery.
• B) reduce the labor used and increase the machinery used if labor and machinery cost the same amount.
• C) reduce the labor used and increase the machinery used only if labor costs more than twice as much as machinery.
• D) reduce the labor used and increase the machinery used only if labor costs exactly twice as much as machinery.

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Definitions:

Actual Results

The real outcomes or data achieved at the end of a specified period, measured against planned or forecasted figures.

Labor Efficiency Variance

A measure used to determine how well labor resources are used, by comparing the standard labor hours supposed to be used to produce goods versus the actual hours used.

Standard Cost System

An accounting system that uses standard costs for cost control and decision-making purposes.

Actual Results

The real, achieved outcomes of business activities, such as sales, expenses, and profits, which are compared against planned or forecasted results.