Consider a firm that uses only labour and capital.At the present use of labour and capital,the MP of labour is twice the MP of capital,and the price of labour is four times the price of capital.In order to minimize its costs,the firm should
A)maintain its present factor mix.
B)decrease capital and increase labour.
C)increase capital and decrease labour.
D)increase both labour and capital.
E)decrease both capital and labour.

Question

Quizplus · Accepted Answer

To minimize costs, the firm should equalize the marginal product per dollar spent on each input. Since the MP of labor is twice that of capital but labor is four times more expensive, the firm should use more capital and less labor.

Consider a Firm That Uses Only Labour and Capital