Suppose that MP_L = 50 and MP_K = 30.If W = 25 and R = 10,then a firm: A) is producing its output at the lowest possible cost. B) could reduce costs by employing more labor and less capital. C) could reduce costs by employing more capital and less labor. D) could minimize costs by employing more of both inputs.

Question

Quizplus · Accepted Answer

Since the marginal physical product of capital (MP_L) is higher than the marginal physical product of labor (MP_K), the firm can reduce costs by employing more capital and less labor. This means that the firm should use less labor (since W = 25) and more capital (since R = 10). Therefore, the answer is C.

Suppose That MPL = 50 and MPK = 30

Suppose That MP_L = 50 and MP_K = 30