If the cost of capital is $100 per hour, the wage paid to employees is $20 per hour, the marginal product of capital is 10 units per hour; and the marginal product of labor is 5 units per hour, the firm is minimizing costs.

Question

Quizplus · Accepted Answer

In order to minimize costs, the firm should allocate its resources in such a way that the marginal product per dollar spent is equal for all factors of production. In this case, the marginal product of capital is twice that of labor, so the firm should hire more capital and less labor to achieve cost minimization. Therefore, the firm is not currently minimizing costs.

If the Cost of Capital Is $100 Per Hour, the Wage