Suppose the Payments to Capital and Labor Are (W*L*)/Y* = $w ^ { * } L ^ { * } + r ^ { * } K ^ { * } = Y ^ { * }$

question 58

Multiple Choice

Suppose the payments to capital and labor are (w*L*) /Y* = 2/3 and (r*L*) /Y* = 1/3, respectively. One implication of this result is that ________ and profits are ________.

• A) \(w ^ { * } L ^ { * } + r ^ { * } K ^ { * } = Y ^ { * }\) ; positive
• B) \(w ^ { * } L ^ { * } + r ^ { * } K ^ { * } = Y ^ { * }\) ; equal to zero
• C) \(w ^ { * } L ^ { * } + r ^ { * } K ^ { * } = Y ^ { * }\) ; negative
• D) \(\left( w ^ { * } L ^ { * } - r ^ { * } K ^ { * } \right) = Y ^ { * }\) ; equal to zero
• E) \(\left( w ^ { * } L ^ { * } / Y ^ { * } \right) \left( r ^ { * } K ^ { * } / Y ^ { * } \right) = 0\) ; negative

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Definitions:

Output Units

The units of production or service delivery output by a process or system within a given period.

Labour Hours

The total amount of working time executed by employees, usually measured in hours, for producing goods or delivering services.

Incremental Value

The additional financial worth generated as a result of a specific action or decision.

All-Equity Firms

Companies that finance their operations without any debt, relying solely on equity.