Explain briefly and concisely the meaning and significance of the following equation:
What will be an ideal response?
This equation shows the profit-maximizing combination of resources, labor and capital in this case, that a firm should employ. It states that the firm should employ both labor and capital up to the point that their marginal revenue products are just equal to their prices, that is, their ratio is equal to 1. If these fractions were greater than one, it would mean that the firm could profitably employ more units of the resources because it would add more to its revenue than to its cost. If these fractions were less than one, it would mean the firm should employ less of the resources because their marginal revenue products are below their marginal cost.
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In equilibrium under monopolistic competition: a. marginal revenue exceeds average revenue. b. marginal revenue exceeds marginal cost
c. marginal revenue is equal to marginal cost. d. marginal revenue is less than marginal cost.
In a Mexican factory, each worker can produce 1/8 of a vase or 1/16 of a statue per hour. If there are 400 workers at the factory, the opportunity cost of one statue is
a. 1/2 of a vase b. 1/8 of a vase c. 8 vases d. 16 vases e. 2 vases
Which of the following quotations best captures the idea of opportunity cost?
a. "Opportunity knocks but once." b. "Every choice involves a sacrifice." c. "Let's not ask for the moon; we have the stars." d. "Fools rush in where wise men fear to tread." e. "All that glitters is not gold."
Economists refer to the inputs that firms use to produce goods and services as
a. derived factors. b. derived resources. c. factors of production. d. instruments of revenue.