A Producer Is Hiring 20 Units of Labor and 6

question 3

Multiple Choice

A producer is hiring 20 units of labor and 6 units of capital bundle A) .The price of labor is $10,the price of capital is $2,and at A,the marginal products of labor and capital are both equal to 20.Beginning at A,if the producer increases labor by one unit and decreases capital by 1 unit,then

• A)cost remains constant and output increases by 20 units.
• B)cost remains constant and output decreases by 20 units.
• C)output remains constant and cost increases by $8.
• D)output remains constant and cost decreases by $8.
• E)both cost and output remain constant.

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Definitions:

Actual Direct Labour Hours

The real number of labor hours spent on a production process as opposed to planned or estimated hours.

Manufacturing Overhead Cost

Indirect costs related to manufacturing that are not directly tied to a specific product, such as factory maintenance and utilities.

Normal Costing System

An accounting system that assigns costs to products based on the normal levels of materials, labor, and overhead.

Inventory Accounts

Accounts used to track the cost of goods a company has in stock during an accounting period, including raw materials, work in progress, and finished goods.