A Competitive Firm Uses Two Inputs: Capital and Labor

question 32

Multiple Choice

A competitive firm uses two inputs: capital and labor.At its current level of hiring of both inputs,capital's marginal product is 12 while labor's marginal product is 18.Capital's cost (C) is $8 per unit while labor's cost (W) is $9.In the long run,to produce the same output at a lower cost,the firm should

• A) hire more labor and less capital.
• B) hire less labor and less capital.
• C) hire more labor and more capital.
• D) hire less labor and more capital.

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Definitions:

Variable Costs

Costs that vary in proportion to the level of production or business activity.

Fixed Costs

Expenses that do not change with the amount of goods or services produced over a short period.

Variable Costs

Costs that vary directly with the level of production or service provision.

Fixed Costs

Expenses that do not change with the level of goods or services produced over a short time.