The Production Function Is F(x₁, X₂)= X^1/2₁x^1/2₂

question 36

Multiple Choice

The production function is f(x₁, x₂) = x^1/2₁x^1/2₂.If the price of factor 1 is $12 and the price of factor 2 is $24, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

• A)x₁ = x₂.
• B)x₁ = 0.50x₂.
• C)x₁ = 2x₂.
• D)x₁ =24x₂.
• E)We can't tell without knowing the price of the output.

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Definitions:

GDP Deflator

An economic metric that converts output measured at current prices into constant-dollar GDP to adjust for inflation.

Gini Coefficient

The Gini coefficient is a measure of income inequality within a population, ranging from 0 (perfect equality) to 1 (perfect inequality), used to assess wealth distribution.

Real Interest Rate

The interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal interest rate minus the inflation rate.

Hidden Unemployment

Unemployment that includes individuals who have stopped looking for work or those who are underemployed, not fully reflected in official unemployment statistics.