Suppose That a Firm Has a Cobb-Douglas Production Function for Its

question 80

Multiple Choice

Suppose that a firm has a Cobb-Douglas production function for its inputs of capital and labor. The firm is currently paying $10 per labor hour and $5 per machine hour. The firm is currently at an efficient production level, employing an equal number of machines and workers. Suppose the cost of labor were to double and the cost of capital were to fall by half. If the firm wanted to produce the previous level of output for the previous cost, the firm would hire:

• A)more labor and less capital.
• B)less labor and more capital.
• C)equal amounts of labor and capital.
• D)twice as much labor as capital.

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Definitions:

Elastic

Describes a situation where the quantity demanded or supplied of a good or service changes significantly when its price changes.

Imperfectly Competitive Market

A market structure where the assumptions of perfect competition, such as identical products and many buyers and sellers, are not fully met.

Imperfectly Competitive

Describes markets where individual sellers can influence prices and terms of trade, contrary to perfect competition.

Purely Competitive

A market structure characterized by many sellers offering identical products, with no single seller able to influence market price.