A firm uses 7 units of labor priced at 8 dollars and 1 unit of capital priced at 12 dollars. The total output is 55 units. According to Table 12.7, why is this combination of inputs not profit-maximizing?
Explanation
A firm maximizes profit by hiring each input until its MRP equals its price. In this case, the MRP of labor is below its price, indicating that the firm has hired past the profit-maximizing point for labor and should reduce its employment of that resource.
Other questions
Which of the following is a primary reason for studying resource pricing?
The demand for economic resources is considered a derived demand because it originates from what?
What is the definition of Marginal Revenue Product (MRP)?
According to the profit-maximizing rule for hiring resources, a firm should hire additional units of a specific resource until what point is reached?
In a purely competitive resource market, what is the relationship between the Marginal Resource Cost (MRC) of labor and the market wage rate?
A firm in a purely competitive product market faces a constant product price of 2 dollars. The first unit of labor it hires has a marginal product (MP) of 7 units. What is the Marginal Revenue Product (MRP) of this first unit of labor?
Why does the resource demand curve for a purely competitive seller slope downward?
An imperfectly competitive seller must lower its product price to sell more output. The third worker hired has a marginal product (MP) of 5 units, which can be sold for 2.20 dollars each. To sell these 5 units, the firm must take a 20-cent price cut on the 13 units produced by the first two workers. What is the Marginal Revenue Product (MRP) of the third worker?
Compared to a purely competitive seller, the resource demand curve of an imperfectly competitive seller is what?
Which of the following would cause a firm's demand curve for labor to shift to the right?
If labor and capital are substitute resources, what is the effect of a decline in the price of capital on the demand for labor?
If labor and capital are complementary resources, what is the effect of a decline in the price of capital on the demand for labor?
Which of the following scenarios would lead to an increase in the demand for labor?
What does the elasticity of resource demand measure?
Which factor is a primary determinant of the ease of resource substitutability, and thus the elasticity of resource demand?
A firm is producing a specific output. What condition must be met for it to be using the least-cost combination of resources?
A firm uses labor and capital, with prices of 1 dollar and 1 dollar per unit, respectively. Currently, the marginal product of labor is 10 and the marginal product of capital is 5. To produce its current output at a lower cost, what should the firm do?
What is the profit-maximizing rule for the combination of resources in competitive markets?
A firm uses 5 units of labor at a price of 8 dollars per unit and 3 units of capital at a price of 12 dollars per unit. The marginal revenue product (MRP) for the last unit of labor is 8 dollars, and the MRP for the last unit of capital is 12 dollars. The total output is 65 units, sold at a price of 2 dollars per unit. Is this firm maximizing its profit?
What is the central assertion of the marginal productivity theory of income distribution?
If a firm hires 6 units of labor, the total product is 27 units. When it hires a 7th unit, the total product is 28 units. Assuming the product sells for a constant 2 dollars per unit, what is the marginal revenue product (MRP) of the 7th unit of labor?
A purely competitive firm will hire labor up to the point where the market wage rate equals what?
One of the reasons that real wages are high in the United States and other advanced economies is that labor demand is strong. What is a primary cause of this strong labor demand?
The substitution effect of a price change for a resource refers to a firm's decision to:
The output effect of a price change for a resource refers to a firm's decision to:
If two resources are highly substitutable for each other, the cross-price elasticity of demand between them will be:
A firm uses 3 units of labor (price 8 dollars) and 2 units of capital (price 12 dollars). The total output is 50 units. If it instead uses 5 units of labor and 1 unit of capital, it still produces 50 units. Why is the second combination of inputs not the least-cost combination?
Which of the following is NOT a determinant of the elasticity of resource demand?
If a firm uses 3 units of labor priced at 8 dollars and 2 units of capital priced at 12 dollars, what is the total cost of this input combination?
One of the criticisms of the marginal productivity theory of income distribution is based on what concept?
If a firm hires two workers, total product is 13 units. Hiring a third worker increases total product to 18 units. If the product price falls from 2.60 dollars to 2.40 dollars as a result of this increased output, what is the marginal revenue product (MRP) of the third worker?
How is the market demand curve for a particular resource derived?
An increase in the quality of a variable resource, such as labor, will lead to what effect?
If a firm uses 4 units of labor at a price of 8 dollars and 4 units of capital at a price of 12 dollars, and the marginal product of the last unit of labor is 4 and the marginal product of the last unit of capital is 6, is the firm minimizing its costs?
If the elasticity of demand for a product is very high (very elastic), what does this imply about the elasticity of demand for the labor used to produce it?
When will a profit-maximizing firm stop hiring additional units of a resource?
In a purely competitive market for both the product and the resource, the firm's demand curve for the resource is which of the following?
A firm is using 5 units of labor and 3 units of capital to maximize its profit. The price of labor is 8 dollars and the price of capital is 12 dollars. The total product is 65 units and the product price is 2 dollars. What is the firm's economic profit?
The replacement of human bank tellers with Automatic Teller Machines (ATMs) is a real-world example of what economic phenomenon?
A firm currently employs a combination of labor and capital where the marginal product per dollar for labor is 6 and the marginal product per dollar for capital is 10. To minimize costs, the firm should:
If a technological advance increases the productivity of labor, what is the most likely effect on the demand for labor?
If labor accounts for 80 percent of a firm's total production costs, what does this imply about the elasticity of its demand for labor?
The demand for superstars like top athletes and entertainers is very high primarily because:
According to the 'Last Word' section, the cost per transaction for an ATM is what fraction of the cost for a human teller?
If a firm is maximizing profits, which of the following conditions must be true?
A firm uses only labor and capital to produce its output. The price of labor is 8 dollars and the price of capital is 12 dollars. If the firm is at its profit-maximizing position, what must be the ratio of the marginal product of labor (MPL) to the marginal product of capital (MPC)?
Which of the following would NOT be considered one of the 'other resources' whose quantities can affect the productivity and demand for labor?
According to Table 12.5, which of the following was a top-ten fastest-growing occupation in the U.S. in percentage terms for 2006–2016?
If a firm is in a purely competitive resource market, its MRP curve is its resource demand curve because: