A Competitive Firm Uses Two Variable Factors to Produce Its

question 30

Multiple Choice

A competitive firm uses two variable factors to produce its output, with a production function q = min{x1, x2}.The price of factor 1 is $8 and the price of factor 2 is $5. Due to a lack of warehouse space, the company cannot use more than 10 units of x1. The firm must pay a fixed cost of $80 if it produces any positive amount but doesn't have to pay this cost if it produces no output. What is the smallest integer price that would make a firm willing to produce a positive amount?

• A) $44
• B) $41
• C) $29
• D) $13
• E) $21

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Definitions:

Firms

Business entities or organizations that produce goods or provide services with the aim of earning profits.

Opportunity Cost

The expense incurred by not selecting the next most favorable option when deciding or opting for one action instead of another.

Hourly Wage

The amount of money paid to an employee for one hour of work.

Leisure

Time free from work or duties, which can be used for relaxation, hobbies, or cultural activities.