Question 1

Suppose capital costs $2000 per unit and labour costs $50 per unit. For a profit - maximizing firm operating at its optimal factor mix, if the marginal product of labour is 10, the marginal product of capital must be
A) 40.
B) 50.
C) 100.
D) 400.
E) 500.

Accepted Answer

The answer of Suppose capital costs $2000 per unit and...

Question 2

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The price of labour is $40 per unit and the price of capital is $1000 per unit. The MPL equals 24 and the MPK equals 600. In this situation,
A) the firm is minimizing its costs.
B) the firm should increase the use of both inputs.
C) the firm could lower its production costs by decreasing labour input and increasing capital input.
D) the firm could lower its production costs by increasing labour input and decreasing capital input.
E) the firm should decrease the use of both inputs.

Accepted Answer

The answer of Suppose a firm is using 1500 units...

Question 3

Suppose that capital costs $10 per unit and labour costs $4 per unit. If the marginal product of capital is 50 and the marginal product of labour is 50, the firm should in order to minimize its costs of producing its output.
A) employ more capital and labour
B) employ less capital and labour
C) employ more capital and less labour
D) employ less capital and more labour
E) not change its current factor use

Accepted Answer

The answer of Suppose that capital costs $10 per unit...

Question 4

Suppose that capital costs $6 per unit and labour costs $3 per unit. If the marginal product of capital is 12 and the marginal product of labour is 6, the cost-minimizing firm should
A) employ more of both capital and labour.
B) employ less of both capital and labour.
C) employ more capital and less labour.
D) employ less capital and more labour.
E) not change its current factor use.

Accepted Answer

The answer of Suppose that capital costs $6 per unit...

Question 5

Suppose that capital costs $10 per unit and labour costs $5 per unit. For a profit -maximizing firm operating at its optimal factor mix, if the marginal product of capital is 50, the marginal product of labour must be
A) 10.
B) 20.
C) 25.
D) 50.
E) 100.

Accepted Answer

To determine the profit-maximizing factor mix, the firm will choose the mix at which the marginal product per dollar spent on capital is equal to the marginal product per dollar spent on labor. Using the given information, we can first calculate the marginal product of labor (MPL) as:
MPL = 10 x MPK / 5
where MPK is the marginal product of capital. Substituting MPK = 50, we get:
MPL = 10 x 50 / 5 = 100
However, this answer does not match any of the options given. This is because the question is looking for the marginal product of labor per dollar spent, not the raw marginal product. To get this, we need to divide MPL by the cost of labor:
MPL / $5 = 100 / $5 = 20
Therefore, the profit-maximizing firm must have an MPL of 25, which corresponds to a marginal product per dollar spent on labor of 5.

Question 6

The following table shows the marginal products of capital K) and labour L) for various methods for Firm ABC to produce 1000 toys per day.  TABLE 8-2
-Refer to Table 8-2. Suppose capital costs $6 per unit and labour costs $4 per unit and the firm is employing production method A. How should this firm adjust its use of capital and labour to minimize costs?
A) employ more capital and less labour
B) employ less capital and more labour
C) employ more capital and more labour
D) employ less capital and less labour
E) There is insufficient information to know.

Accepted Answer

The answer of The following table shows the marginal products...

Question 7

Suppose that capital costs $100 per unit and labour costs $40 per unit. If the marginal product of capital is 200 and the marginal product of labour is 60, a cost-minimizing firm should
A) employ more capital and less labour.
B) employ more of both capital and labour.
C) employ less of both capital and labour.
D) employ less capital and more labour.
E) not change its current factor use.

Accepted Answer

The answer of Suppose that capital costs $100 per unit...

Question 8

The following table shows the marginal products of capital K) and labour L) for various methods for Firm ABC to produce 1000 toys per day.  TABLE 8-2
-Refer to Table 8-2. Suppose the firm is employing production method G. How should this firm adjust its use of capital and labour in order to minimize costs?
A) employ more capital and less labour
B) employ less capital and more labour
C) employ more capital and labour
D) employ less capital and labour
E) There is insufficient information to know.

Accepted Answer

The answer of The following table shows the marginal products...

Question 9

The following table shows the marginal products of capital K) and labour L) for various methods for Firm ABC to produce 1000 toys per day.  TABLE 8-2
-Refer to Table 8-2. If capital costs $6 per unit and labour costs $4 per unit, which production method minimizes the cost of producing 1000 toys per day?
A) method B
B) method C
C) method D
D) method E
E) method F

Accepted Answer

The answer of The following table shows the marginal products...

Question 10

Suppose that capital costs $50 per unit and labour costs $20 per unit. If the marginal product of capital is 100 and the marginal product of labour is 30, a cost-minimizing firm should
A) employ more of both capital and labour.
B) employ less of both capital and labour.
C) employ more capital and less labour.
D) employ less capital and more labour.
E) not change its current factor use.

Accepted Answer

The firm should use more capital and less labour. This is because the marginal product of capital (100) is higher than the marginal product of labour (30) which means that using an additional unit of capital will increase output more than using an additional unit of labour. Therefore, the firm can reduce its total cost by substituting more capital for labour.

Question 11

Suppose a firm employs two kinds of inputs, capital at $100 per unit, and labour at $25 per unit. If the marginal product of capital is 50, then the firm should in order to minimize its production costs.
A) employ more capital and less labour
B) employ more labour and less capital
C) employ more labour and more capital
D) not change its current factor use
E) There is insufficient information to make a recommendation.

Accepted Answer

The answer of Suppose a firm employs two kinds of...

Question 12

Consider a firm that uses only labour and capital. At the present use of labour and capital, the MP of labour is twice the MP of capital, and the price of labour is four times the price of capital. In order to minimize its costs, the firm should
A) increase capital and decrease labour.
B) decrease both capital and labour.
C) decrease capital and increase labour.
D) increase both labour and capital.
E) maintain its present factor mix.

Accepted Answer

The answer of Consider a firm that uses only labour...

Question 13

If a firm is using labour and capital such that the MP of labour is two times the MP of capital, and the price of labour is four times the price of capital, the firm should in order to minimize its costs of producing its output.
A) increase capital and decrease labour
B) decrease both capital and labour
C) decrease capital and increase labour
D) increase both labour and capital
E) not alter its present factor mix

Accepted Answer

The answer of If a firm is using labour and...

Question 14

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The price of labour is $50 per unit and the price of capital is $800 per unit. The MPL equals 25 and the MPK equals
400) In this situation,
A) the firm is minimizing its costs.
B) the firm should increase the use of both inputs.
C) the firm could lower its production costs by decreasing labour input and increasing capital input.
D) the firm could lower its production costs by increasing labour input and decreasing capital input.
E) the firm should decrease the use of both inputs.

Accepted Answer

The answer of Suppose a firm is using 1500 units...

Question 15

Consider a firm that uses only labour and capital. At the present use of labour and capital, the MP of labour is two times the MP of capital, and the price of labour is two times the price of capital. In order to minimize its costs, the firm should
A) substitute capital for labour until their marginal products are equal.
B) decrease both capital and labour.
C) decrease capital and increase labour.
D) increase both labour and capital.
E) not alter its present factor mix.

Accepted Answer

The answer of Consider a firm that uses only labour...

Question 16

The following table shows the marginal products of capital K) and labour L) for various methods for Firm ABC to produce 1000 toys per day.  TABLE 8-2
-Refer to Table 8-2. As this firm switches from production method A to production method G, production is
A) moving farther and farther away from cost minimization.
B) becoming more capital intensive and less labour intensive.
C) becoming more profitable.
D) becoming more labour intensive and less capital intensive.
E) remaining at a cost-minimizing level of output.

Accepted Answer

As the firm switches from production method A to production method G, the marginal product of capital (K) increases while the marginal product of labour (L) decreases. This indicates that production is becoming more capital intensive and less labour intensive. This switch to a more capital-intensive method suggests that the firm is trying to increase efficiency and productivity, which may lead to greater profitability.

Question 17

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The price of labour is $50 per unit and the price of capital is $800 per unit. The MPL equals 60 and the MPK equals 1200. In this situation,
A) the firm is minimizing its costs.
B) the firm should increase the use of both inputs.
C) the firm could lower its production costs by decreasing labour input and increasing capital input.
D) the firm could lower its production costs by increasing labour input and decreasing capital input.
E) the firm should decrease the use of both inputs.

Accepted Answer

To determine whether the firm is minimizing its costs or not, we need to calculate the cost-minimizing ratio of inputs, which is equal to the ratio of the marginal products to their respective prices. In this case, the cost-minimizing ratio of labour to capital is:

MPL/PL : MPK/PK

Substituting the values, we get:

60/$50 : 1200/$800
= 1.2 : 1.5

Since the actual ratio of inputs (1500/20 = 75) is lower than the cost-minimizing ratio (1.2 : 1.5), the firm is not minimizing its costs. Therefore, we can eliminate options A and B.

To determine the best choice in this situation, we need to consider the marginal rate of technical substitution (MRTS), which measures the rate at which the firm is willing to substitute one input for another while holding output constant. In this case, the MRTS is equal to the MPL/MPK, which is 0.05.

Since the MRTS is less than the ratio of input prices (PK/PL = 16), the firm can lower its costs by decreasing its use of the more expensive input (labour) and increasing its use of the less expensive input (capital). Therefore, the best choice is C.

Question 18

Suppose capital costs $280 per unit and labour costs $16 per unit. For a profit - maximizing firm operating at its optimal factor mix, if the marginal product of capital is 70, the marginal product of labour must be
A) 4.
B) 6.
C) 8.
D) 12.
E) 16.

Accepted Answer

The answer of Suppose capital costs $280 per unit and...

Question 19

Suppose that capital costs $8 per unit and labour costs $4 per unit. For a profit - maximizing firm operating at its optimal factor mix, if the marginal product of capital is 60, the marginal product of labour must be
A) 10.
B) 20.
C) 30.
D) 90.
E) 120.

Accepted Answer

To maximize profit, a firm should allocate resources such that the marginal revenue product of each input is equal to its marginal cost. In this case, capital costs $8 and labor costs $4. Therefore, the marginal revenue product for capital is $8 x 60 = $480 and the marginal revenue product for labor is $4 x MPL. If the firm is operating at its optimal factor mix, it must be the case that MRP(L)/4 = MRP(K)/8 or MRP(L)/MRP(K) = 2.

Thus, MPL = 2 x 60 = 120.

Question 20

Suppose that capital costs $6 per unit and labour costs $3 per unit. If the marginal product of capital is 3 and the marginal product of labour is 6, the cost-minimizing firm should
A) employ more of both capital and labour.
B) employ less of both capital and labour.
C) employ more capital and less labour.
D) employ less capital and more labour.
E) not change its current factor use.

Accepted Answer

Since the marginal product of labour is greater than the marginal product of capital, it is more cost-effective to hire more labour and use less capital. This will allow the firm to produce the same quantity of output at a lower cost.

Quiz 8: Producers in the Long Run

Suppose capital costs $2000 per unit and labour costs $50 per unit. For a profit - maximizing firm operating at its optimal factor mix, if the marginal product of labour is 10, the marginal product of capital must be

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The price of labour is $40 per unit and the price of capital is $1000 per unit. The MPL equals 24 and the MPK equals 600. In this situation,

Suppose that capital costs $10 per unit and labour costs $4 per unit. If the marginal product of capital is 50 and the marginal product of labour is 50, the firm should in order to minimize its costs of producing its output.

Suppose that capital costs $6 per unit and labour costs $3 per unit. If the marginal product of capital is 12 and the marginal product of labour is 6, the cost-minimizing firm should

Suppose that capital costs $10 per unit and labour costs $5 per unit. For a profit -maximizing firm operating at its optimal factor mix, if the marginal product of capital is 50, the marginal product of labour must be

Suppose that capital costs $100 per unit and labour costs $40 per unit. If the marginal product of capital is 200 and the marginal product of labour is 60, a cost-minimizing firm should

Suppose that capital costs $50 per unit and labour costs $20 per unit. If the marginal product of capital is 100 and the marginal product of labour is 30, a cost-minimizing firm should

Suppose a firm employs two kinds of inputs, capital at $100 per unit, and labour at $25 per unit. If the marginal product of capital is 50, then the firm should in order to minimize its production costs.

Consider a firm that uses only labour and capital. At the present use of labour and capital, the MP of labour is twice the MP of capital, and the price of labour is four times the price of capital. In order to minimize its costs, the firm should

If a firm is using labour and capital such that the MP of labour is two times the MP of capital, and the price of labour is four times the price of capital, the firm should in order to minimize its costs of producing its output.

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The price of labour is $50 per unit and the price of capital is $800 per unit. The MPL equals 25 and the MPK equals 400) In this situation,

Consider a firm that uses only labour and capital. At the present use of labour and capital, the MP of labour is two times the MP of capital, and the price of labour is two times the price of capital. In order to minimize its costs, the firm should

The following table shows the marginal products of capital K) and labour L) for various methods for Firm ABC to produce 1000 toys per day. TABLE 8-2 -Refer to Table 8-2. As this firm switches from production method A to production method G, production is

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The price of labour is $50 per unit and the price of capital is $800 per unit. The MPL equals 60 and the MPK equals 1200. In this situation,

Suppose capital costs $280 per unit and labour costs $16 per unit. For a profit - maximizing firm operating at its optimal factor mix, if the marginal product of capital is 70, the marginal product of labour must be

Suppose that capital costs $8 per unit and labour costs $4 per unit. For a profit - maximizing firm operating at its optimal factor mix, if the marginal product of capital is 60, the marginal product of labour must be

Suppose that capital costs $6 per unit and labour costs $3 per unit. If the marginal product of capital is 3 and the marginal product of labour is 6, the cost-minimizing firm should