The Owner of Instant Printing,a Firm That Prints Business Cards,tells

question 4

Multiple Choice

The owner of Instant Printing,a firm that prints business cards,tells you that as a result of an increase in the wage rate of printer operators he has reduced the amount of output he produces and the amount of capital he uses.How would you respond to this?

• A) You should tell him that this doesn't make any economic sense because according to the input-substitution effect, he should have substituted toward capital and away from labor.
• B) This seems logical, because the output effect of an input price increase would cause a firm to demand less of all inputs, not just the input whose price increased.
• C) You should tell him that instead of reducing output and the demand for all inputs, he should increase output and the demand for inputs so that he can meet the higher labor costs by generating more revenue.
• D) You tell him that the input-substitution effect and the scale effect both suggest that he decrease the amount of capital he uses when his workers' wage rate increases.

---

Definitions:

Pure Play Method

An approach in finance where investments are made in companies that specialize in a single line of business or sector to achieve specific exposure.

Beta

A measure of a stock's volatility in relation to the overall market; a beta above 1 means the stock is more volatile than the market, while below 1 means less.

NPV

Net Present Value is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Cost Of Capital

The rate of profit a company should generate from its investments to preserve its value in the market and appeal to investors.