If the MRP per dollar is greater for labor than that for tools, a producer should spend more money on labor than originally planned and less on tools. How long can he continue this switch in spending? Why?
What will be an ideal response?
By the “law” of diminishing returns, when the producer buys more and more labor time, the initially higher MRP of labor will decline. As he or she spends less and less on tools, tools will become scarcer and more valuable and their initially lower MRP will rise. So, as the producer transfers more money from tools to labor, the MRPs per dollar for the inputs will get closer and closer to one another, and they will eventually meet. That, then, is when the proportions of spending allocated to the two inputs will have reached the optimal level. At that point, there is no way he or she can get more for his or her money by changing the proportions of those inputs that he or she hires or buys.
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In its earliest years, the Federal Reserve's guiding principle for the conduct of monetary policy was known as the
A) real bills doctrine. B) liberal liquidity doctrine. C) free reserves doctrine. D) quantity theory of money.
One reason for the rise in the natural rate of unemployment from 1960 to 1980 is
A) changes in the demographic composition of the work force. B) the decline in inflation. C) increased competition from foreign workers. D) the depreciation of the dollar relative to foreign currencies.
The logistical costs associated with implementing a tax are called the:
A. deadweight loss. B. administrative burden. C. total surplus. D. tax revenue.
Straker Industries estimated its short-run costs using a U-shaped average variable cost function of the formAVC = a + bQ + cQ2and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000. 
If Straker Industries produces 12 units of output, what is estimated total variable cost (TVC)?
A. $1,348 B. $171.40 C. $463.20 D. $2,348