When a Cost-Minimizing Firm Is Faced with an Increase in the Relative

question 34

Multiple Choice

When a cost-minimizing firm is faced with an increase in the relative price of labour,it adjusts its factor usage so as to

• A)increase the marginal product of capital relative to the marginal product of labour.
• B)increase the marginal product of labour relative to the marginal product of capital.
• C)use more labour per unit of output than before.
• D)use more of both capital and labour per unit of output.
• E)maintain the previous usage of labour.

---

Definitions:

Desk Lamp Production

The process involving the assembly, testing, and packaging of desk lamps for consumer use.

Single Plantwide Factory Overhead Rate

A method of allocating total factory overhead costs to units produced, using a single rate for the entire manufacturing plant.

Labor-Intensive Department

A department within a company that relies more on human labor than on machinery or automation to produce goods or provide services.

Capital-Intensive Department

A division within a company that requires a large investment in capital assets relative to its labor cost.