Asked by Erika Driesen on Jun 09, 2024
Verified
A firm combines two resources, A and B, to produce an output, Q. Their respective marginal revenue products are $30 and $21. A costs $15 a unit and B $7 a unit. To reduce the cost of Q,
A) more B and less A should be used.
B) more A and less B should be used.
C) more of both resources should be used.
D) less of both resources should be used.
Marginal Revenue Products
The additional revenue generated by employing one more unit of a factor of production, such as labor or capital.
Unit Costs
The cost incurred to produce, store, and sell one unit of a product, including raw material, labor, and overhead costs.
- Learn the concept of cost reduction for organizations using multiple resources.
- Investigate the effects of input cost fluctuations on company decisions concerning the assortment of inputs employed in production processes.
Verified Answer
MT
Maria TerraziJun 09, 2024
Final Answer :
A
Explanation :
The firm should use more of resource B and less of resource A because the marginal revenue product (MRP) of B ($21) is higher than its cost ($7), indicating it is underutilized, while the MRP of A ($30) is twice its cost ($15), suggesting a more balanced use. By adjusting the use of resources to better align the MRP with their costs, the firm can reduce the cost of producing Q.
Learning Objectives
- Learn the concept of cost reduction for organizations using multiple resources.
- Investigate the effects of input cost fluctuations on company decisions concerning the assortment of inputs employed in production processes.