Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore.The price of labour is $50 per unit and the price of capital is $800 per unit.The MPL equals 60 and the MPK equals 1200.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 overusing labour and underusing capital, as the MPL (60) is less than the ratio of the price of labour to the price of capital (50/800 = 0.0625). Therefore, the firm could lower its production costs by decreasing labour input and increasing capital input to achieve a better balance between the two inputs.

Suppose a Firm Is Using 1500 Units of Labour and 20