A firm is using 500 units of labor and 100 units of capital to produce 100 units of output. Labor costs $5 per unit and capital $20 per unit. At these input levels, another unit of labor adds 5 units of output, while another unit of capital adds 40 units of output. If the firm uses 496 units of labor and 101 units of capital instead, what will happen?
A. Output will be unchanged, and cost will decrease by $40.
B. Output will be unchanged, and cost will decrease by $20.
C. Cost will be unchanged, and output will increase by 20 units.
D. Cost will be unchanged, and output will increase by 35 units.
Answer: C
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Under the adaptive expectations hypothesis, which of the following is the effect of a shift to a more expansionary monetary policy?
a. In the short run, the real rate of output will be unaffected, but in the long run, it will increase. b. In the short run, the unemployment rate will decrease, but in the long run, it will self correct to the natural rate of unemployment. c. There will be a permanent increase in the real rate of output, but the inflation rate will also be a little higher. d. In the short run, the impact on the real rate of output is uncertain, but in the long run, output will increase.
Which of the following is not a common response to the moral hazard problem that employers face?
a. offering all employees some funding for additional education b. paying efficiency wages c. requiring employees to provide itemized receipts for reimbursable expenses d. paying year-end bonuses rather than higher monthly earnings