Suppose Capital and Labor Must Be Used in Fixed Proportions

question 12

Multiple Choice

Suppose capital and labor must be used in fixed proportions to produce widgets and that the price elasticity of demand for widgets is zero.Then the wage elasticity of demand for labor by widget makers will be

• A)+1.
• B)-1.
• C)0.
• D)infinite.

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Definitions:

Net Present Value

The differentiation in the now-value of cash transactions, both incoming and outgoing, over a defined period.

Profitability Index

Profitability Index is a financial metric that calculates the relative profitability of an investment by dividing the present value of future cash flows by the initial investment cost.

Benefit-Cost Perspective

A method of evaluating projects or decisions by comparing the benefits they will generate to the costs required to implement them.

NPV

Net Present Value (NPV) is a financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time.