Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Ratio of marginal revenue product of capital to its price
B
Ratio of total cost of capital to total revenue
C
Ratio of labor supply to labor demand
D
Ratio of total profit to total output
Understanding the Answer
Let's break down why this is correct
Answer
In economics, when we talk about the marginal revenue product of labor, we refer to the additional money a company earns from hiring one more worker. If we think of the efficiency of labor as the ratio of this revenue to the worker's wage, we can make a similar analogy for capital allocation by looking at the marginal revenue product of capital. This means we would compare the extra income generated by an additional unit of capital, like machinery or equipment, to the cost of using that capital. For example, if a factory buys a new machine that increases production and earns $10,000 more but costs $5,000 to use, the ratio of $10,000 to $5,000 shows how efficiently the capital is being used. By using this comparison, businesses can determine if spending on capital is worthwhile, just like they do with labor.
Detailed Explanation
The right way to measure how well we use capital is by looking at how much money it makes compared to its cost. Other options are incorrect because This option mixes total costs with total revenue; This option talks about how many workers we have versus how many we need.
Key Concepts
Resource Allocation for Profit Maximization
Marginal Revenue Product (MRP)
Cost Efficiency
Topic
Resource Allocation for Profit Maximization
Difficulty
medium level question
Cognitive Level
understand
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