Copyright

If the marginal product of labor is 3, the marginal product of capital is 4, the wage rate is...

Question:

If the marginal product of labor is 3, the marginal product of capital is 4, the wage rate is $4.50, the rental price of capital is $6, and the price of output is $1.50, then the firm should:

A. increase output by hiring more labor, more capital, or both.

B. substitute more labor for less capital to increase its profits.

C. decrease output by reducing the quantity of capital, reducing the number of units of labor, or both.

D. maintain its current combination of labor and capital.

Profit Maximisation

For any rational firm, profit maximisation is one of the important goals. To earn maximum possible profits, it has to make use of its input resources optimally by putting the economic theory on paper.

Answer and Explanation: 1

Become a Study.com member to unlock this answer!

View this answer

The correct option is D. maintain its current combination of labour and capital

A firm should produce up to a point where its marginal rate of...

See full answer below.


Learn more about this topic:

Loading...
Marginal Product of Labor: Definition, Formula & Example

from

Chapter 3 / Lesson 49
81K

Understand the meaning of marginal product of labor. Learn the marginal product of labor (MPL) formula, its significance, and how to calculate MPL with examples.


Related to this Question

Explore our homework questions and answers library