If a Firm Wants to Maximize Profits It Should

question 39

Multiple Choice

If a firm wants to maximize profits it should

• A) hire lots of capital and very little labor since labor needs to be trained.
• B) hire unskilled labor rather than skilled labor since unskilled labor is cheaper.
• C) equate the marginal physical product for each input to the price of the input.
• D) equate the marginal revenue product for each input to the price of the input.

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Definitions:

Demand Function

An equation that illustrates the quantity of an item that will be demanded at various prices, assuming all other factors remain constant.

Equilibrium Price

The market price at which the quantity of a good supplied is equal to the quantity demanded, resulting in market equilibrium.

Marginal Cost

The augmentation in total cost triggered by the creation of one further unit of a product or service.

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers, leading to a state of market equilibrium.