Question

18.)A profit-maximizing firm in a competitive market should stop employing additional units of a factor when
a.)marginal revenue of the factor is maximized
b.)price of the product is greater than the marginal cost of the factor
c.)marginal cost of employing the factor is minimized
d.)value of the marginal product of the factor equals the price of the factor
e.)marginal product of the factor is maximized

19.)A firm in a competitive market will employ additional capital until its value of the marginal product of capital is
a.)equal to the interest rate.
b.)equal to the rental rate.
c.)equal to the wage rate.
d.)increasing at a decreasing rate.
e.)minimized.

20.)A firm finds that the wage rate for their employees is currently higher than marginal revenue product. The firm is likely to
a.)continue with current level of employees.
b.)decrease the quantity of labor employed.
c.)increase the quantity of labor employed.
d.)see a decrease in labor supply.
e.)see an increase in labor supply.

Answer 1

18. Ans: value of the marginal product of the factor equals the price of the factor.

Explanation:

The profit maximization condition is VMP of a factor = Price of the factor.

19. Ans: equal to the rental rate.

Explanation:

The profit maximization condition is VMP of a factor = Price of the factor.

Here, the price of capital is the interest rate. Thus,

VMP of capital = rental rate

20. Ans: decrease the quantity of labor employed.

Explanation:

The profit maximization condition is VMP of a factor = Price of the factor.

By decreasing the quantity of labor employed, VMP of labor will increase. And VMP of labor will be equal to the wage rate.