Answer:
Choose Project A whose payback is 2.492 years and therefore falls within the 2.5 year required payback period.
Explanation:
Project A
Year Cash-flow Balance
0 (72,000) (72,000)
1 21,400 (50,600)
2 22,900 (27,700)
3 56,300 28,600
Project B
Year Cash-flow Balance
0 (81,000) (81,000)
1 20,100 (60,900)
2 22,200 (38,700)
3 74,800 36,100
Answer:
C) the firm is experiencing a diminishing marginal rate of technical substitution.
Explanation:
Isoquant reflects factor combinations which give producer same output level. It is analogous to consumer's indifference curve, reflecting goods combinations giving same satisfaction level.
- It is downward sloping as same quantity of a good can be produced by - one factor increase, other factor decrease & one factor decrease, other factor increase.
- It is also concave i.e inwards bending towards origin, because of fallings slope. It implies that marginal rate of technical substitution (fall in one factor , replaced by gain in other factor) with same level of output i.e same isoquant - keeps on falling.
This concept is highlighted in the given statement : If a firm hires one worker and eliminates four units of capital, and hires one more worker and replaces three more units of capital, keeping output constant.
