A Competitive Firm Produces Output Using Three Fixed Factors and One

question 1

Multiple Choice

A competitive firm produces output using three fixed factors and one variable factor. The firm's short-run production function is q = 305x - 2x², where x is the amount of variable factor used. The price of the output is $2 per unit and the price of the variable factor is $10 per unit. In the short run, how many units of x should the firm use?

• A) 37
• B) 150
• C) 21
• D) 75
• E) None of the above.

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Definitions:

Direct Material

Raw materials that are directly traceable to the manufacturing of a product and are an integral part of the finished product.

Direct Labor

Labor costs directly traceable to the production of specific goods or services, such as wages for assembly line workers.

Overhead

Expenses that are not directly associated with the production of goods or services but are required for the company's operations, such as rent, utilities, and administrative salaries.

Book Value

The net value of a company's assets found on the balance sheet, calculated by subtracting liabilities from the total value of assets.