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?
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 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 can get more for his money by changing the proportions of those inputs that he hires or buys.
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A) the real interest rate will rise B) the inflation rate will decrease C) the real interest rate will remain unchanged D) the real interest rate will fall
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a. elastic. b. inelastic. c. unitary elastic. d. infinitely elastic.
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A. $270 B. $360 C. $90 D. $180
An inverted structure in futures commodity prices (prices falling over time) from the December to May contract
A. potentially rewards storing the commodity for selling later. B. means potentially higher expected profits from postponing selling to May. C. usually means higher expected profits from selling farm output in December rather than in May. D. Both A and B.