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.

Question

Business

Dahlia Hudson

11 February, 14:02

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.

+3

Answers (1)

Know the Answer?

Justine Fry · Answer 1

inorder to minimize the cost, the firm should use (b) more labor and less capital

Explanation:

The term "marginal productivity" refers to the extra output gained by adding one unit of labor; all other inputs are held constant. So, the technology and efficiency of the factory stays the same. Marginal productivity is the extra jeans sewn, that is output gained, by hiring an extra worker, for example.

so the company can minimize the cost of production by bring in more labour and proving less capital.