Suppose a Firm Is Using Labor and Capital and Obtaining

question 13

Multiple Choice

Suppose a firm is using labor and capital and obtaining the maximum possible output for a given total cost.If the price of labor increases, all other things unchanged, then the firm will:

• A) shift funds out of labor into capital.
• B) adjust factor utilization until the ratios of marginal product to price are equal for the two factors.
• C) hire less labor, which will result in an increase in labor's marginal product, and hire more capital, leading to a fall in the marginal product of capital.
• D) do all of the above.

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Definitions:

Slopes Downward

Describes a line or curve on a graph that decreases in value as it moves from left to right, often used in the context of supply and demand curves.

Concave

Describes a shape or curve that is curved inward, resembling the inner surface of a sphere or circle.

Indifference Curves

Graphical representations showing combinations of goods or services that give a consumer equal satisfaction and utility.

Demand Curve

A graph showing the relationship between the price of a good or service and the quantity of it that consumers are willing to purchase at different prices.