For a Given Firm, Whenever the Ratio of Marginal Product

question 44

Multiple Choice

For a given firm, whenever the ratio of marginal product to input price differs across inputs,

• A)The market will adjust the price of the higher priced input
• B)It will always be possible to make a cost-saving substitution in favor of the input with the lower MP/P ratio (except in the case of corner solutions)
• C)It will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio
• D)The market will adjust the price of the lower priced input

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Definitions:

Long-run Average Total Cost

Represents the average cost per unit of output in the long-term, where all inputs are variable, allowing for the adjustment of all factors of production.

Minimum Efficient Scale

The smallest amount of production a company can achieve while still taking full advantage of economies of scale in terms of lowering the average cost per unit.

Long-run Average Total Cost

The average cost per unit of output over the long term, where all inputs are considered variable.

Output Q₀

The quantity of goods or services produced in a given period of time, denoted as Q₀ to specify a particular amount.