A Firm Is Using 50 Units of Labor and 100

question 52

Multiple Choice

A firm is using 50 units of labor and 100 units of capital to produce 2,000 units of output.The price of labor is $200 per unit and the price of capital is $100 per unit.At these input levels,another unit of labor adds 400 units to output and another unit of capital adds 600 units to output.The firm

• A)is minimizing the cost of producing 2,000 units of output.
• B)could produce 6 more units of output at the same cost by switching $1 from labor to capital.
• C)could produce 4 more units of output at the same cost by switching $1 from labor to capital.
• D)could keep output constant and reduce cost by using more capital and less labor.
• E)both c and d

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Definitions:

MRP

MRP, or Marginal Revenue Product, quantifies the added value generated by employing an additional unit of input in the production process.

Haircut

A reduction applied to the value of an asset for purposes of calculating capital requirements, margining, or risk assessment.

Marginal Revenue Product

The extra income produced by employing an additional unit of a production resource.

Cost Minimization

A strategy that companies employ to reduce their expenses and improve profitability without compromising the quality of their products or services.