Assume That a Perfectly Competitive Firm Faces a Fixed Wage

question 368

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 labor.
• B) use relatively less labor.
• C) increase all inputs proportionately.
• D) decrease all inputs proportionately.