A firm combines two resources, X and Y, to produce an output level Q in a purely competitive market. The cost of a unit of X is $15 and the cost of a unit of Y is $8. The marginal product of X is 30 units and the marginal product of Y is currently 24
units at output level Q. What would you recommend that the firm do given this resource combination?
What will be an ideal response?
The firm can reduce the cost of production by changing the mix of resources X and Y. The least costly method of production is determined by finding the equality of the ratio of the marginal product to price for the resources. In this case, the firm should use more Y and less X because currently the marginal productivity per dollar of resource spent on X yields less than the marginal productivity per dollar spent on Y (30/$15 < 24/$8, or 2 < 3).
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According to classical theory, full employment in the labor market occurs
A) only when actual expenditures are greater than desired expenditures. B) only when the economy has just experienced a demand shock. C) whenever aggregate demand is less than aggregate supply. D) at a wage rate at which quantity demanded equals quantity supplied.
Keynesian economists believe that the private sector of the economy is inherently _______.
Fill in the blank(s) with the appropriate word(s).