Refer to the following: A producer is hiring 20 units of labor and 6 units of capital (bundle A). The price of labor is $10, the price of capital is $2, and at A, the marginal products of labor and capital are both equal to 20. -In equilibrium, A) MP_L will be less than 20. B) MP_K will be more than 20. C) MP_L will be 5 times MP_K. D) a and b E) none of the above

Question

Quizplus · Accepted Answer

In equilibrium, the ratio of marginal products should equal the ratio of input prices. Here, MPL/MPK = Price of Labor/Price of Capital = 10/2 = 5. Thus, MPL will be 5 times MPK.

Refer to the Following