A Competitive, Profit-Maximizing Firm Uses Two Inputs a and B

question 28

Multiple Choice

A competitive, profit-maximizing firm uses two inputs a and b.Its production function is F(a, b) = a1/2 +a1/2.Its output sells for $5 per unit.The price of input a is $1 per unit.If the price of output rises to $6 per unit but factor prices do not change.

• A)it will increase its purchases of factor a by 11/4 units.
• B)it will increase its purchases of factor a by 9/4 units.
• C)it will increase its purchases of factor a by 3/4 units.
• D)we need to know the price of factor b to be able to determine the change in demand for a.
• E)None of the above.

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Definitions:

Interval

A range of values used to estimate a population parameter, including a measured level of reliability.

Ratio

A quantitative relationship between two numbers showing how many times the first number contains the second or vice versa.

Scales of Measurement

A classification that describes the nature of information within the values assigned to variables in statistical analysis.

Ordinal

Relating to a categorical ranking in which the order of the values is significant, but the difference between them is not uniformly spaced.