A firm combines two resources, X and Y, to produce an output level Q in a purely competitive market. The cost of a unit of X is $15 and the cost of a unit of Y is $8. The marginal product of X is 30 units and the marginal product of Y is currently 24
units at output level Q. What would you recommend that the firm do given this resource combination?
What will be an ideal response?
The firm can reduce the cost of production by changing the mix of resources X and Y. The least costly method of production is determined by finding the equality of the ratio of the marginal product to price for the resources. In this case, the firm should use more Y and less X because currently the marginal productivity per dollar of resource spent on X yields less than the marginal productivity per dollar spent on Y (30/$15 < 24/$8, or 2 < 3).
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Refer to the table above, which gives five points on a nation's PPF. The production of 7 units of X and 28 units of Y is
A) impossible given the available resources. B) possible but leaves some resources less than fully used or misallocated. C) on the production possibilities frontier between points c and d. D) on the production possibilities frontier between points b and c.
In a two-player simultaneous game, if player A has a dominant strategy and player B does not, player B will
A) employ a mixed strategy. B) choose his best strategy assuming that player A plays her dominant strategy. C) not achieve a Nash equilibrium. D) assume that player A does not choose her dominant strategy.
Answer the following statement(s) true (T) or false (F)
1. Relative to mobile sources, stationary sources are bigger emitters of sulfur oxides. 2. Acidic compounds are formed from a chemical reaction in the earth’s atmosphere, involving sulfur dioxide, nitrogen oxide, water vapor, and oxidants. 3. Acid rain is a local pollution problem. 4. Of the two major pollutants responsible for acid rain, sulfur dioxide (SO2) is the more significant. 5. Major sources of SO2 emissions are automobiles and other mobile sources.