Assume that a perfectly competitive firm faces a fixed wage rate of $4 and a constant per-unit cost of capital of $2. If the marginal product of labor and capital are 16 and 6, respectively, then to maximize profits the firm should

A) use relatively more capital.
B) use relatively less capital.
C) increase all inputs proportionately.
D) decrease all inputs proportionately.


Answer: B

Economics

You might also like to view...

An economic model suggests that for every additional year of education, the future wages increase by 5 percent

If Richard, with 12 years of education, earns $20 per hour, how much will he earn per hour if he decides to undertake four additional years of education?

Economics

During the recession of 2001,

a. there were a number of proposals for tax increases or spending cuts to stir the economy, but they failed due to worries about their effects on the already large deficit. b. a series of tax cuts were passed, though they only occurred in late 2001. c. all the proposed tax and spending cuts were approved in order to motivate the economy and reduce the large deficit. d. the cyclical deficit increased but the structural deficit remained unchanged. e. None of the above

Economics

The basis of judgment for the Standard Oil case was ________, whereas the basis of judgment for the ALCOA case was ________:

A. market concentration; interlocking directorships. B. monopolistic abuses; market structure. C. market structure; market performance. D. unfair business practices; price discrimination.

Economics

In the long run, output gaps are eliminated by:

A. reducing potential output. B. increasing potential output. C. increased efficiency in labor markets. D. price changes.

Economics