Concept: Cost Minimization Input Price Question Hei A firm producesoput using ca

Question

Concept: Cost Minimization Input Price Question Hei A firm producesoput using capital and labor. The firm's marginal product of labor (MPL) is 40 and its marginal product of capital (MPK) is 32 Suppose the wage per unit of labor (w) is $8.00 and the cost per unit of capital (r)is $4.00. Is the firm minimizing the cost of production? What should the firm do, if anything, to produce the same level of output at lower cost? The firm OA. is not minimizing the cost of production and should use more capital and less labor B. is minimizing the cost of production and should use more capital and more labo ° C. is minimizing the cost of production and should not change its use of capital and labor. D. is not minimizing the cost of production and should use less capital and less labor O E. is not minimizing the cost of production and should use less capital and more labor,

Explanation / Answer

Answer

The optimum choice of input is at per dollar marginal product should be equal
per dollar marginal product of labor=40/8=5
per dollar marginal product of capital=32/4=8
it is not same so the firm is not minimizing cost.
the firm is getting more per dollar marginal product by employing capital than labor so the firm should increase the capital input and decrease labor input to the per dollar marginal product is same.
Option A

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