The Concepts of Stock and Flow Are Involved in Firms

question 105

Multiple Choice

The concepts of stock and flow are involved in firms' demand for labour and for capital.Which of the following statements is correct?

• A)A firm hires a stock of labour services; and purchases a stock of physical capital,which provides a flow of services.
• B)Labour and capital are both flow variables because their values change over time.
• C)A firm hires a flow of labour services; and purchases a stock of physical capital,which provides a flow of services.
• D)Labour and capital are both stock variables because they are providing service at any given moment in time.
• E)A firm's demand for both labour and capital is determined by the marginal value each provides to the stock of labour and capital,respectively.

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Definitions:

MRTS

The Marginal Rate of Technical Substitution; the rate at which a firm can substitute one input for another while keeping the level of output constant.

Marginal Productivity

Marginal productivity refers to the additional output produced as a result of adding one more unit of a specific input, keeping all other inputs constant.

Fixed-Proportion

A production scenario where the input proportions cannot be changed; each unit of output requires the same ratio of inputs.

Production System

The combination of inputs, processes, and outputs that creates goods or services in an organized manner.