A Profit-Maximizing Firm Will Increase Its Use of Capital and Decrease

question 107

Multiple Choice

A profit-maximizing firm will increase its use of capital and decrease its use of labour when the

• A)marginal product of capital is higher than the marginal product of labour.
• B)marginal product of capital,per dollar spent on capital,is greater than the marginal product of labour,per dollar spent on labour.
• C)average product of capital is higher than the average product of labour.
• D)total product of capital is higher than the total product of labour.
• E)marginal product of capital,per dollar spent on capital,is less than the marginal product of labour,per dollar spent on labour.

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Definitions:

Discount Rate

The discount rate that's used to estimate the present value of future cash flows within discounted cash flow analysis.

Net Present Value

Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment, calculated by summing the present values of incoming and outgoing cash flows over a period of time.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment or project, calculated by discounting all expected future cash flows to the present value.

Market Value

The present cost set for assets or services to be traded in the marketplace.