A Firm's Production Function Is Given by Q = KL

question 6

Multiple Choice

A firm's production function is given by Q = KL. The marginal products of labor and capital are, respectively, MP_L = K and MP_K = L. The wage rate of labor is w = $10 and the rental rate of capital is r = $20. The firm spends exactly $1000 in the most efficient way possible. How much output can the firm produce?

• A) 450
• B) 800
• C) 1000
• D) 1250

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Definitions:

Cash Ratio

A liquidity ratio that measures a company's ability to cover its short-term liabilities with its cash and cash equivalents.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value.

Current Liabilities

Current liabilities are a company's debts or obligations that are due to be paid to creditors within one year.

Long-term Debt

Debt obligations that are due for repayment in more than one year, often used by businesses to finance operations or acquisitions.