Suppose that capital costs $10 per unit and labour costs $5 per unit.For a profit- maximizing firm operating at its optimal factor mix,if the marginal product of capital is 50,the marginal product of labour must be
A)10.
B)50.
C)25.
D)100.
E)20.

Question

Quizplus · Accepted Answer

In order to maximize profit, the firm will choose to produce where the marginal revenue product of each factor equals the factor's price. Thus, the firm will choose to hire capital and labor such that:

MRP of capital = Price of capital
50 = $10
MRP of labor = Price of labor
x = $5
x = 25

Therefore, the marginal product of labor must be 25.

Suppose That Capital Costs $10 Per Unit and Labour Costs