Bev's Bakery, a Donut Maker, Has Discovered That the Ratio

question 125

Multiple Choice

Bev's Bakery, a donut maker, has discovered that the ratio of the marginal product of labor to the price of labor is 6.5, while the ratio of the marginal product of capital to the price of capital is 6.1.The firm has determined that it does not want to change its total costs.Bev's Bakery should:

• A) do nothing; the differences in the ratios of marginal product to input price are too small to matter.
• B) use more labor and less capital.
• C) use more capital and less labor.
• D) do nothing different since there is insufficient information upon which to make a decision.

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Definitions:

Direct Labor Rate

The rate paid for the labor time per unit of work or hour worked by an employee directly involved in production.

Cost Drivers

Factors that cause the cost of an activity or process to change, affecting the overall cost of production.

Budgets

Financial plans that estimate income and expenditures for a specific period, often used for planning and control purposes.

Colorado Rockies

A major mountain range in western North America, extending from the northernmost part of British Columbia, in Canada, to New Mexico, in the southwestern United States.