Suppose a Firm Is Using 100 Units of Labour and 50

question 43

Multiple Choice

Suppose a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day.The price of labour is $5 per unit and the price of capital is $2 per unit.The MP_L equals 5 and the MP_K equals 2.In this situation,the firm

• A)is minimizing its costs.
• B)should increase the use of both inputs.
• C)could lower its production costs by decreasing labour input and increasing capital input.
• D)could lower its production costs by increasing labour input and decreasing capital input.
• E)should decrease the use of both inputs.

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Definitions:

Weighted-Average Method

an inventory costing method that assigns a cost to inventory and to the goods sold based on the average cost of all similar items available during a certain period.

Work in Process Inventory

The value of raw materials, labor, and overhead costs for products that are partially completed but not yet ready for sale.

Transferred Out

In a process costing environment, it refers to goods that have been completed in one department and moved to the next stage in the production process.

Production Costs

The total expenses incurred in the process of manufacturing or producing goods, including labor, materials, and overhead costs.