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 labor by one unit and decreases capital by 1 unit, then
A. output remains constant and cost increases by $8.
B. cost remains constant and output increases by 20 units.
C. cost remains constant and output decreases by 20 units.
D. output remains constant and cost decreases by $8.
E. both cost and output remain constant.
Answer: A
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The shape of the costs curves may be traced back to
A) the law of diminishing marginal utility. B) the difference between the short run and the long run. C) the law of diminishing marginal returns. D) the fact that all production occurs in the long run.
Maurice can drive or fly from Jacksonville, Florida to Atlanda, Georgia, for a one-day business trip. If he drives, he will be able to work three hours once he arrives in Atlanta, whereas traveling by plane will enable him to work eight hours. His expected income from each hour of work in Atlanta is $30 . If Maurice is a rational decision maker, he will fly if and only if the price differential
(air cost minus driving cost) is less than a. $30. b. $90. c. $150. d. $240.
Demand for gasoline is inelastic because there are no substitutes available.
a. true b. false
Last month Laura saw the value of her stock portfolio rise by $20,000. This month she saw the value of her portfolio decline by $20,000. According to behavioral economics:
A. the positive utility Laura received from seeing her portfolio value rise was equal to the disutility she felt when its value declined. B. Laura should not invest in stocks unless the utility she receives from gains is at least as great as the disutility she feels from losses. C. the positive utility Laura received from seeing her portfolio value rise was greater than the disutility she felt when its value declined. D. the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.