A Firm Is Currently Using Two Inputs: Labor and Capital

question 71

Multiple Choice

A firm is currently using two inputs: labor and capital. It rents equipment for $1,000, which produces a value of the marginal product of $5,000. It hires workers at $10 an hour who produce a value of the marginal product of $100. The wages of workers rise by 20% and the rental price of capital increases by 25%. The firm should hire _________ labor and _________ capital.

• A) more; more
• B) more; less
• C) the same amount; the same amount
• D) less; more
• E) less; less

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Definitions:

Intense Fear

A heightened emotional response to a perceived threat, characterized by increased adrenaline and rapid heartbeat.

Affect-As-Information Theory

People use their current emotions to make decisions, judgments, and appraisals, even if they do not know what caused their emotions.

Job Offer

A formal proposal by an employer to a potential employee to work at a company or organization, typically specifying job duties and compensation.

First Impression

The initial perception one forms about another person or thing upon first encounter, which can be lasting and influential.