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Given Y is output, X is input and P is price, profit is maximized when; Select one: O a
Given Y is output, X is input and P is price, profit is maximized when; Select one: O a. MPX = PX/ Py O b. All equations are incorrect. O c. MPy = PY/ PX O d. MVPY = PY In a production function, with increase of the input the product: Select one: O a. Decreases at an increasing rate and then increases at a decreasing rate and achieve a maximum. O b. Increases at an increasing rate and then increases at decreasing rate and achieve a maximum. O c. Increases at a decreasing rate and then increases at increasing rate and achieve a maximum. d. All statements are incorrect.
Expert Solution
The answer is (a)
The firm will maximize profits when,
Marginal revenue product of X = Price of X
=> PY * MPX = PX
=> MPX = PX/PY
All other options are incorrect as they do not maximize profits
Q2) The answer is (b) as initially when the inputs increase, there is increased efficiency and the output increases at an increasing rate. But eventually, the diminishing returns sets in and the output will increase at a decreasing rate and reach a maximum when marginal product of the input reached 0.
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