Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increasing labor is justified if the marginal product of labor exceeds that of capital.
B
The firm should always maintain the current levels of labor and capital regardless of output changes.
C
The firm should only invest in capital because it is less variable than labor.
D
Decreasing labor and increasing capital is always the optimal choice.
Understanding the Answer
Let's break down why this is correct
Answer
The firm's decision-making process related to cost minimization is best described as optimizing its resource allocation. By adding 2 more units of labor, the firm increases its output from 100 to 120 units without changing the cost of capital, which means it is using its resources more efficiently. This decision shows that the firm is looking for the best way to maximize production while keeping costs at the same level. For example, if hiring additional labor allows the firm to produce more goods without needing to invest in more expensive machinery, it is effectively minimizing costs while increasing output. This approach helps the firm remain competitive and profitable in the market.
Detailed Explanation
Increasing labor is a good choice if it helps produce more output. Other options are incorrect because Thinking the firm should keep everything the same ignores new opportunities; Believing that capital is always better than labor is a mistake.
Key Concepts
Cost Minimization
Marginal Product Analysis
Resource Allocation
Topic
Cost Minimization in Firms
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.