The production function for a competitive firm is Q = K.5L.5. The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at one unit and costs $2. The maximum profits are:
A. 10.
B. 3.
C. 15.
D. None of the answers are correct.
Answer: B
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Typically, the unemployment rate ________ during a recession and ________ during an expansion.
A. rises; does not change B. rises; falls C. rises; rises even more D. falls; rises
Which of the following is a partially valid economic argument for restricting free trade?
a. Restrictions on foreign trade will increase employment and permanently reduce unemployment. b. Removal of restrictions that have existed for years will initially cause inflation. c. Infant industries need permanent protection to develop and gain productive efficiency. d. A nation needs to protect industries that are vital to national defense in case of future international conflict.
The reason for the multiplier effect is that
A. businesses make decisions about investment projects based on anticipated profits. B. one person’s additional expenditure creates a new source of income for another person, and this additional income leads to still more spending. C. changes in government spending typically deepen recessions and exacerbate inflationary conditions in the economy. D. additional spending lowers the rate of interest and leads to further borrowing and spending.
Checks and currency function similarly, however:
A. currency is a more effective means of payment. B. checks are not included in measures of money, whereas currency is. C. currency is a better store of value than checking deposits. D. carrying currency entails greater risk, because it cannot be replaced if lost or stolen.