Answer the Question on the Basis of the Following Information

question 105

Multiple Choice

Answer the question on the basis of the following information: Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions.The price of labor is P_L and that of capital is P_C.The marginal product of labor is MP_L and that of capital is MP_C.The firm sells its product competitively at a price of P_X. Refer to the given information.If MP_C/P_C > MP_L/P_L,the firm:

• A) may be maximizing profits,but it is not minimizing costs.
• B) may be minimizing costs,but it is not maximizing profits.
• C) is neither minimizing costs nor maximizing profits.
• D) is minimizing costs and maximizing profits.

---

Definitions:

Production Possibilities

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, technology, etc.).

Trade-offs

Situations where making a decision to gain something entails losing something else, typically requiring a compromise or balancing act.

Technology

The application of scientific knowledge for practical purposes, especially in industry and improvements in tools, machinery, and systems.

Production Possibilities Frontier

The production possibilities frontier (PPF) is a curve depicting all maximum output possibilities for two or more goods, given a set of inputs.