Suppose that capital costs $8 per unit and labour costs $4 per unit.For a profit- maximizing firm operating at its optimal factor mix,if the marginal product of capital is 60,the marginal product of labour must be
A)120.
B)10.
C)90.
D)20.
E)30.

Question

Quizplus · Accepted Answer

For a profit-maximizing firm, the ratio of the marginal product to the cost of each factor should be equal. Therefore, MPK/PK = MPL/PL. Given MPK = 60 and PK = 8, MPL must be such that MPL/4 = 60/8. Solving this gives MPL = 30.

Suppose That Capital Costs $8 Per Unit and Labour Costs