Assume That a Perfectly Competitive Firm Faces a Fixed Wage

question 119

Multiple Choice

Assume that a perfectly competitive firm faces a fixed wage rate of $4 and a constant per-unit cost of capital of $2. If the marginal product of labor and capital are 16 and 6, respectively, then to maximize profits the firm should

• A) use relatively more capital.
• B) use relatively less capital.
• C) increase all inputs proportionately.
• D) decrease all inputs proportionately.

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