If a Firm Faces Perfectly Competitive Product and Factor Markets

question 356

Multiple Choice

If a firm faces perfectly competitive product and factor markets and the marginal product of labor and capital are 4 and 9, respectively, while the wage rate is $2 and the rental rate on capital is $4, the firm should

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

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Definitions:

Probability

A mathematical measurement of the likelihood of an event occurring, expressed as a number between 0 and 1.

Level of Significance

The criterion used for rejecting the null hypothesis; often denoted by alpha.

Type II Error

The failure to reject a false null hypothesis, also known as a "false negative."

Null Hypothesis

A statement or hypothesis in statistical inference that implies no effect or no difference, and it serves as the default or starting assumption for hypothesis testing.