A firm is employing capital and labor such that the marginal product of capital is 80 and the marginal product of labor is 20
If the price of a unit of capital is $30 and the price of a unit of labor is $15, is the firm minimizing its costs? If not, can you recommend a change for the firm to make in its relative amounts of labor and capital used? Explain.
No, the firm is not minimizing costs. The slope of its isoquant is -20/80 (-1/4) and the slope of its isocost line is -15/30 (-1/2). In order to minimize costs, the firm needs to produce where these slopes would be equal. In other words, the firm needs to produce where the slope of its isoquant is -1/2 . If the firm was to decrease its use of labor or increase its use of capital, the slope of the isoquant will rise.
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Suppose that when disposable income increases by $1,000, consumption spending increases by $750. Given this information, we know that the marginal propensity to consume (MPC) is
A) .25. B) .75. C) $1,000/$750 = 1.33. D) 1/.25 = 4.
If the opportunity cost of producing corn is lower for Ohio than for Iowa, then:
A. Iowa should specialize in corn production. B. Iowa has the comparative advantage in corn production. C. Iowa should export corn to Ohio. D. Ohio has the comparative advantage in corn production.
Chicken and fish are substitutes. Therefore, the cross elasticity of demand between chicken and fish should be: a. negative
b. positive. c. zero. d. All of the above are possible.
Competitive price-taker markets are characterized by
a. low entry barriers and a large number of firms selling a homogeneous product. b. intense rivalry among firms selling differentiated products. c. quality competition among firms and a wide variety of products. d. advertising.