In Problem 11, the Production Function Is F(x₁, X₂)

question 2

Multiple Choice

In Problem 11, the production function is f(x₁, x₂) . If the price of factor 1 is $4 and the price of factor 2 is $6, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

• A) x₁ = x₂.
• B) x₁ = 0.67x₂.
• C) x₁ = 1.50x₂.
• D) We can't tell without knowing the price of output.
• E) x₁ = 6x₂.

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Definitions:

Fixed Exchange Rates

A government or central bank policy to maintain the country’s currency at a constant value relative to another currency or a benchmark.

Floating Exchange Rates

A currency valuation system where the value of a currency is determined by the foreign exchange market based on supply and demand relative to other currencies.

Gold Standard

A monetary system in which the value of currency is directly linked to gold, whereby currencies can be exchanged for a specific amount of gold.

Deflation

Deflation is an economic condition characterized by a general decrease in prices of goods and services, often indicating a reduction in the supply of money or credit.