Refer to Table 8-27. What is the level of personal income for ...

[ETearle]

Refer to Table 8-27. What is the level of personal income for this economy?
 
  A) 1,140 billion B) 1,010 billion C) 990 billion D) 860 billion

Question 2

Alan's Roast House sells roasted peanuts in a competitive market. The firm employs labor ata wage rate of 6 per hour and rents capital for 15 per hour.
 
  At its current level of labor and capital, the marginal product of labor is 12 and the marginal product of capital is 40 . Is the firm currently maximizing profit? Explain.

[Perkypinki]

Answer to Question 1

B

Answer to Question 2

No, the firm is not currently maximizing profit. The firm should hire labor and capital such that MPL/PL is equal to MPK/PK. In this case, MPL/PL (2) is less than MPK/PK (2.67). Thus, the firm should hire less labor (which would raise MPL) and more capital (which would lower MPK).