Suppose That Capital Costs $100 Per Unit and Labour Costs

question 31

Multiple Choice

Suppose that capital costs $100 per unit and labour costs $40 per unit.If the marginal product of capital is 200 and the marginal product of labour is 60,a cost-minimizing firm should

• A)employ more capital and less labour.
• B)employ more of both capital and labour.
• C)employ less of both capital and labour.
• D)employ less capital and more labour.
• E)not change its current factor use.

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Definitions:

Satisfaction

The feeling of pleasure or contentment that comes from fulfilling a desire, expectation, or need, or achieving a goal.

Marginal Rate

The rate at which one additional unit of something affects an outcome, often used in the context of taxes or production.

Substitution

The economic concept where consumers replace more expensive items with less costly alternatives, influencing demand and market dynamics.

Indifference Curve

A graphical representation in economics showing different bundles of goods between which a consumer is indifferent, implying no preference for one combination over the other.