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Q. |
Suppose a competitive firm produces 100 units of X for a price of Rs.10 a unit. The firm is employing labour and capital such that the marginal physical product of labour and capital is 20 and 5 and the prices paid to labour and capital are Rs. 60 and Rs. 40 respectively. How would you characterize the firm |
A. | the firm is in long-run equilibrium |
B. | the firm is earning excess profits |
C. | the firm should expand production |
D. | the firm should contract production |
Answer» C. the firm should expand production |
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