Suppose a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day.The price of labour is $10 per unit and the price of capital is $5 per unit.The MPL equals 2 and the MPK equals 5.In this situation,
A)the firm is minimizing its costs.
B)the firm should increase the use of both inputs.
C)the firm could lower its production costs by decreasing labour input and increasing capital input.
D)the firm could lower its production costs by increasing labour input and decreasing capital input.
E)the firm should decrease the use of both inputs.

Question

Quizplus · Accepted Answer

The firm is currently experiencing decreasing marginal returns to labor (MPL<MPK). This means that the cost of an additional unit of labor is higher than the cost of an additional unit of capital. Therefore, the firm should reduce its use of labor and increase its use of capital to minimize production costs.

Suppose a Firm Is Using 100 Units of Labour and 50