Suppose That a Firm Uses Only Capital,K,and Labor,L,in Its Production

question 56

Multiple Choice

Suppose that a firm uses only capital,K,and labor,L,in its production process.At the firm's current long-run combination of capital and labor,it uses positive amounts of both inputs and measures the marginal products as and .The rental rate of capital is r = 6 and the current wage rate for labor is w = 3.The firm

• A) is currently minimizing total cost in the long run.
• B) could lower cost by increasing the usage of capital and decreasing the usage of labor.
• C) could lower cost by increasing the usage of labor and decreasing the usage of capital.
• D) cannot lower cost without also lowering the level of output.

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Definitions:

Efficient Taxation

A taxation system designed to minimize the economic costs or distortions that it imposes on society, while achieving desired revenue and distributional effects.

Excess Burden

The cost to society created by market inefficiency, typically due to taxes or government policies that distort resource allocation.

Progressive

Relating to progressive policies or movements that advocate for change, reform, and innovation, often in the social, political, or economic sphere.

Elastic Demand

refers to a situation where the quantity demanded of a good or service is highly responsive to changes in its price.