Suppose the marginal product of labor is 10 and the marginal product of capital is 8. If the wage...
Question:
Suppose the marginal product of labor is 10 and the marginal product of capital is 8. If the wage rate is $5 and the price of capital is $2, then in order to minimize costs the firm should use:
A. more capital and less labor.
B. more labor and less capital.
C. equal amounts of labor and capital.
D. None of the statements is correct.
Minimizing Input Cost
In microeconomics, we learn that in the production process, the firm aims at hiring the input mix that minimizes the total cost of inputs. This combination occurs at the point where the marginal rate of technical substitution is equal to the ratio of input prices.
Answer and Explanation: 1
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- The correct answer is: D. None of the statements is correct..
For a firm to minimize its input cost, it has to produce at the point where the...
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