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

question 12

Multiple Choice

In Problem 11, the production function is f(x₁, x₂) . If the price of factor 1 is $8 and the price of factor 2 is $4, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

• A) We can't tell without knowing the price of output.
• B) x₁ = x₂.
• C) x₁ = 0.50x₂.
• D) x₁ = 2x₂.
• E) x₁ = 4x₂.

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Definitions:

Marginal Expenditure

The rise in expense from obtaining one more unit of a good or service.

Average Expenditure

The total spending divided by the number of units bought, used to calculate the average cost of goods or services.

Rent Seeking

Spending money in socially unproductive efforts to acquire, maintain, or exercise monopoly.

Monopoly

A market structure characterized by a single seller dominating the entire market, often leading to higher prices due to lack of competition.