1.) When the marginal product of labor is smaller than its average product a. Ma

Question

1.) When the marginal product of labor is smaller than its average product

a. Marginal cost must be declining

b. Marginal cost must be smaller than average cost

c. Average variable cost must be greater than marginal cost

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

a. The firm should hire more labor

b. The firm should hire more capital

c. The firm should hire capital and labor equally

d. The firm should reduce the amount of labor while keeping its capital constant

3.) Suppose the price of one unit of labor (wage) is $15 where its marginal product is 5 units of output. Thus we can say:

a. The marginal revenue of the firm is greater than $5

b. The marginal cost of the firm is $5

c. The marginal cost of the firm is $0.33

d. The marginal cost of the firm must be greater than its average cost

Explanation / Answer

Answer.)

Q1.) b. Marginal cost must be smaller than average cost

Q2.) a. The firm should hire more labor

Q3.) a. The marginal revenue of the firm is greater than $5

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