In the Long Run,a Profit-Maximizing Firm Will Select Capital and Labor

question 53

Multiple Choice

In the long run,a profit-maximizing firm will select capital and labor so that

• A) the marginal product of labor equals the marginal product of capital.
• B) the wage divided by the marginal product of labor equals the rental cost of a unit of capital divided by the marginal product of capital.
• C) labor equals capital.
• D) the wage equals the rental cost of a unit of capital.

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Definitions:

Scale

The size or level of activity of a project, business, or operation, which can significantly affect its efficiency, costs, and profitability.

Decreasing Returns

A principle where an increase in the amount of one factor of production, while other factors are held constant, results in a lower ratio of output per input.

Diminishing Returns

A principle stating that if one factor of production is increased while others are held constant, the incremental output will eventually decrease.

Scale

The size or level of something, often used to describe the scope of a business operation or production.