2. A firm is using 25 units of labor and 60 units of capital to produce 10,000 u

Question

2. A firm is using 25 units of labor and 60 units of capital to produce 10,000 units of output. At this combination the marginal product of labor is 20 and the marginal product of capital is 60. The price of labor is $15 and the price of capital is $90. a. The MP per dollar of labor is , and the MP per dollar of capital is b. If the firm can increases labor by one unit and decreases capital by units while keeping output constant. This will not change) cost by The firm increases labor and reduces capital the marginal product of capital will increase, decrease c. (rise, fall, remain the same), while the marginal product of labor will (rise, fall, remain the same). d. To produce the current output at the minimum cost the firm will increase _and decrease until the MPt/MPK equals

Explanation / Answer

2)

a) MP per dollar of labor = MPL/Price of labor

MP per dollar of labor = 20/15 = 4/3

MP per dollar of capital = MPK/ Price of Capital

MP per dollar of capital = 60/90 =2/3.

b) This will decrease the cost because MPL/PL > MPK/PK

c) rise, fall

d) labor , capital, 20/60= 1/3.

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