Suppose a firm is employing labour (L)and capital (K)such that MPK/MPL = PK/PL.If the price of labour rises,the cost-minimizing firm should then A)employ more labour and less capital because MPK/MPL PK/PL. B)employ more capital and less labour because MPK/MPL PK/PL. C)employ more labour and less capital because MPK/MPL

Question

Suppose a firm is employing labour (L)and capital (K)such that MPK/MPL = PK/PL.If the price of labour rises,the cost-minimizing firm should then A)employ more labour and less capital because MPK/MPL > PK/PL. B)employ more capital and less labour because MPK/MPL > PK/PL. C)employ more labour and less capital because MPK/MPL < PK/PL. D)employ more capital and less labour because MPK/MPL < PK/PL. E)do nothing.

Quizplus · Accepted Answer

When the price of labor rises, the firm should employ more capital and less labor to maintain the cost-minimizing condition, as the ratio MPK/MPL becomes greater than PK/PL.

Suppose a Firm Is Employing Labour (L)and Capital (K)such That