If the Marginal Rate of Technical Substitution of Labor for Capital

question 10

Multiple Choice

If the marginal rate of technical substitution of labor for capital is 6,the price of labor is $18,and the price of capital is $9,then the firm

• A)can substitute one unit of capital for six units of labor and keep output unchanged.
• B)should use more labor and less capital.
• C)should use more capital and less labor.
• D)both a and b
• E)both a and c

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Definitions:

Absorption Costing

A financial recording technique that incorporates all production-related charges, including direct materials, direct labor, along with both changeable and steady overhead expenses, into the product's cost.

Manufacturing Costs

Expenses directly related to the production of goods, including materials, labor, and overhead costs.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and are a part of the finished product.

Fixed Manufacturing Overhead

Fixed manufacturing overhead costs are those production expenses that do not change with the volume of production, such as rent and salaries.