If the Price of a Fixed Factor of Production Increases

question 46

Multiple Choice

If the price of a fixed factor of production increases by 50 percent, what effect would this have on the marginal-cost schedule facing a firm?

• A)None, because fixed costs do not affect marginal cost.
• B)Marginal cost would increase by 50 percent.
• C)Marginal cost would increase by less than 50 percent.
• D)Marginal cost would increase by more than 50 percent.

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Definitions:

Bounded Rationality

A concept suggesting that decision-making is limited by the information available, cognitive limitations of the mind, and the finite amount of time available to make a decision.

Opportunity Costs

The potential benefits or profits lost when choosing one alternative over another, representing the cost of forgone opportunities.

Rational Decision

A decision-making process that is based on making choices that result in the optimal level of benefit or utility for an individual.

Economic Payoff

The return or financial outcome received from an investment, decision, or policy, typically expressed in terms of profit or cost savings.