The Production Function Is F(x₁, X₂) = ₁

question 21

Multiple Choice

The production function is f(x₁, x₂) = _1
2. If the price of factor 1 is $10 and the price of factor 2 is $15, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

• A) x₁ = 1.50x₂.
• B) x₁ = x₂.
• C) x₁ = 15x₂.
• D) x₁ = 0.67x₂.
• E) We can't tell without knowing the price of the output.

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Definitions:

Cash Flows

The net amount of cash being transferred into and out of a business, influencing the company's liquidity, solvency, and overall financial health.

Discounted Payback Method

A capital budgeting technique that calculates the time required to recoup the initial investment in present value terms.

Normal Cash Flows

Cash flows that occur in a predictable pattern, where an initial outlay is followed by a series of income receipts.

Real Internal Rate of Return

The real internal rate of return is the annual rate of growth an investment is expected to generate, adjusted for inflation.