Suppose a Firm Uses Labor and Capital to Produce Output

question 116

Multiple Choice

Suppose a firm uses labor and capital to produce output.The last unit of labor hired has a marginal product of 12 units of output, and the last unit of capital employed has a marginal product of 20 units.Use the optimal combination of inputs rule to calculate the price of capital if the price of labor is $6 per unit.The price of capital is

• A)$2.
• B)$10.
• C)$20.
• D)impossible to determine with the information given.

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Definitions:

Classical School

A branch of economic thought that emphasizes the importance of market forces in determining economic outcomes and the self-regulating nature of the economy.

Great Depression

A severe and prolonged global economic downturn that occurred in the 1930s, marked by massive unemployment and deflation.

Laissez-Faire

The philosophy that the private economy should function without any government interference.

Classical Theory

An economic theory proposing that free markets can regulate themselves through the relationship of supply and demand without government intervention.