You are an efficiency expert hired by a firm in the clothing industry that uses

Question

You are an efficiency expert hired by a firm in the clothing industry that uses machines (K) and workers (L) as inputs. The firm has estimated that the marginal product of labor is MPL = 120 - 6 L, while the marginal product of capital is MPK = 50 - 3 K, and the volume of output produced is Q = 1500. The firm is currently using 16 units of L and 7 units of K. If w = $20, r = $15 then Answer the firm is minimizing the cost of producing the given quantity of output. the firm should use less L and more K to minimize the cost of producing the given quantity of output. the firm should use less K and more L to minimize the cost of producing the given quantity of output the firm is profit maximizing but not cost minimizing You are an efficiency expert hired by a firm in the clothing industry that uses machines (K) and workers (L) as inputs. The firm has estimated that the marginal product of labor is MPL = 120 - 6 L, while the marginal product of capital is MPK = 50 - 3 K, and the volume of output produced is Q = 1500. The firm is currently using 16 units of L and 7 units of K. If w = $20, r = $15 then the firm is minimizing the cost of producing the given quantity of output. the firm should use less L and more K to minimize the cost of producing the given quantity of output. the firm should use less K and more L to minimize the cost of producing the given quantity of output the firm is profit maximizing but not cost minimizing the firm is minimizing the cost of producing the given quantity of output. the firm should use less L and more K to minimize the cost of producing the given quantity of output. the firm should use less K and more L to minimize the cost of producing the given quantity of output the firm is profit maximizing but not cost minimizing

Explanation / Answer

for minimizing cost, MPl/MPk = w/r

MPl = 24

MPk = 29

w/r = 20/15 = 4/3

therefore as the ratio MPl/MPk shall be increased,

the firm should use less L and more K to minimize the cost of producing the given quantity of output.

(marginal productivity decreases as the no. increases.)

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