Sam's company produces output with labor and capital. At the current quantities of labor and capital, the following information is obtained: the output produced by spending one more dollar on labor exceeds the output produced by spending one more
dollar on capital. In the long run, is Sam minimizing costs? If not, explain how capital and labor should change (holding output constant) and how this relates to the condition.
The last dollar rule is not satisfied. He should spend more on labor and less on capital. At this point, MRTS > w/r.
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The law of increasing opportunity costs is a result of the fact that:
A) the value of the dollar has declined over time. B) wage rates rise as the economy reaches full employment. C) consumers tend to value a good more when they don't have much of it. D) resources are not equally productive in all output categories.
Because a decrease in the nominal interest rate reduces the opportunity costs of holding money, the money demand curve:
A. slopes upward. B. shifts to the right. C. shifts to the left. D. slopes downward.