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 expenditures on labor by $1 and decreases expenditures on capital by $1, then
A. output remains constant and cost increases by $8.
B. cost remains constant and output decreases by 8 units.
C. cost remains constant and output increases by 12 units.
D. cost remains constant and output increases by 20 units.
E. output remains constant and cost decreases by $2.
Answer: B
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In the short run the firm has at least one fixed input
a. True b. False Indicate whether the statement is true or false
The distinction between exogenous and endogenous variables is important because:
a. Endogenous variables are real factors while exogenous variables are nominal factors. b. Endogenous variables are fixed by definition. c. Exogenous variables are fixed by definition. d. Endogenous variables are determined within the Three-Sector-Model while exogenous variables are not. Endogenous variables are therefore treated as shocks to the Three-Sector-Model. e. Endogenous variables are determined within the Three-Sector-Model while exogenous variables are not. Exogenous variables are therefore treated as shocks to the Three-Sector-Model.
Use the following graph to answer the next question.
The graph shows the cost curves for a perfectly competitive firm. If the market price of the product is $1.25 per unit,then the firm will earn how much in profits/losses in the short run?
A. $25 B. $9 C. -$9 D. -$12
If resources are misallocated in a perfectly competitive market, then, in the long run, profit opportunities will:
A. not bring about a reallocation of resources unless firms are subsidized. B. not bring about a reallocation of resources unless there is government regulation. C. bring about a less efficient allocation of resources. D. bring about a more efficient allocation of resources.