Question

Assume that an appliance manufacturer is employing variable resources X and Y in such amounts that the MRPs of the last units of X and Y employed are $100 and $60 respectively. Resource X can be hired at $50 per unit and resource Y at $20 per unit. The firm:
A. should hire more of both X and Y
B. should hire more of Y and less of X
C. is producing with the least-costly combination of X and Y,but could increase its profits by employing more of X and less of Y
D. is using the least-cost combination of X and Y, but could increase its profits by employing less of both X and Y

Answer 1

Answer:

C. is producing with the least-costly combination of X and Y,but could increase its profits by employing more of X and less of Y

Explanation:

At equilibrium

We know that

MRPx ÷ MRPy = wx ÷ wy

So, according to the question, it is

100 ÷ 6< 50 ÷ 20

This means that MRPx ÷  wx  > MRPy ÷  wy

In this way, the equilibrium x would be rise and y would be decreased

Therefore the correct option is c.  

And, the rest of the options would be seems wrong