Learning Path
Question & Answer
Choose the Best Answer
marginal product
total product
average product
fixed cost
Understanding the Answer
Let's break down why this is correct
The firm wants each dollar spent on labor to add the same amount of output as each dollar spent on capital. Other options are incorrect because Total product is the overall amount of goods produced, not the change from adding a new unit; Average product looks at output per input unit, but it ignores how much extra output a new unit gives.
Key Concepts
Profit Maximization
medium level question
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Deep Dive: Profit Maximization
Master the fundamentals
Definition
Profit maximization involves firms optimizing their resource allocation to achieve the highest level of profit. This process includes comparing the marginal revenue product of labor and capital to their respective prices, aiming for both ratios to be equal to one for optimal resource utilization.
Topic Definition
Profit maximization involves firms optimizing their resource allocation to achieve the highest level of profit. This process includes comparing the marginal revenue product of labor and capital to their respective prices, aiming for both ratios to be equal to one for optimal resource utilization.
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