Suppose MPL = 0.5 ∗ (q/L)and MPₖ = 0.5 ∗ (q/K).In the long run,the firm will hire equal amounts of capital and labor

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Quizplus · Accepted Answer

In the long run, the firm will hire capital and labor until the marginal product of each factor is equal to its price, as the firm seeks to minimize its cost of production. Thus, the firm will hire equal amounts of capital and labor when MPₖ/Pₖ = MPL/PL, where Pₖ and PL are the prices of capital and labor, respectively. Simplifying the equation using the given MP equations, we get K/L = w/r. Therefore, the firm will hire equal amounts of capital and labor when w = r. Option B is the only choice that matches this explanation.