Question

8. With capital (k) measured along the vertical axis and labor (L) along the horizontal axis,...

8. With capital (k) measured along the vertical axis and labor (L) along the horizontal axis, the slope of an isoquant is equal to

A.

Wage/Rent
B.

Rent/Wage
C.

MPL/MPK
D.

MPK/MPL

9. If the ratio between the price of labor and the price of capital (w/r) is smaller than the ratio between the marginal product of labor and the marginal product of capital,

A.

the firm must hire more capital
B.

the firm must hire more labor
C.

the firm should reduce the amount of labor
D.

the firm should equally increase both labor and capital

10. The ratio between the price of a variable input and the marginal product of that input is equal to

A.

average variable cost
B.

the average price of that input
C.

marginal revenue
D.

marginal cost

11. When labor is a variable input the product of wage and the marginal product of labor is equal to the profit maximizing price. True / False

12.

If the price falls below the average total cost
A.

the firm will shut down in the short run
B.

the firm will not shut down in the long run
C.

the firm will be making economic profits in the short run but not in the long run
D.

the firm may not shut down in the short run
When labor is a variable input the product of wage and the marginal product of labor is equal to the profit-maximizing price.

True

False

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Homework Answers

Answer #1

8.

The slope of the isoquant is changed in capital upon the change in labor equals MPL divided by MPK

the correct option is c

9.

when (MPL/MPK) > (w/r) means labor is expensive so the firm would employ more capital.

the correct option is a

10.

marginal revenue product equals marginal product multiplied by marginal revenue which altogether equals price. So the ratio of the price of variable input divided by marginal product will be equal to marginal revenue.

the correct option is c

11.

False. It is the product of price and the marginal product of labor which equals the price of the product.

12.

The firm if the price is less than the average total cost would remain operating if the price is greater than the average variable cost in the short run but it will shut down in the long run.

the correct option is D

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