Assume a firm is currently employing 20 units of capital and 100 units of labor

Question

Assume a firm is currently employing 20 units of capital and 100 units of labor in its production process. Assume also that the marginal product of the 20th unit of capital is 40 units of output, the marginal product of the 100th unit of labor is 10 units of output and the per unit prices of capital and labor are $20 and $10, respectively. In this case, in order to minimize its costs of production the firm should:

hire more capital and less labor.

hire more labor and less capital.

hire less capital and less labor.

hire more capital and more labor.

Explanation / Answer

hire more labor and less capital

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