A firm is currently producing 200 units of output using 60 hours of labour and 80 hours of capital. The marginal product of labour is 12 units of output per hour, and the marginal product of capital is 15 units of output per hour. If the wage rate is $6 per hour and the rental rate of capital is $3 per hour, then:
A)the firm should use more capital and less labour.
B)the firm should use more labour and less capital.
C)we cannot determine if the firm's use of inputs is efficient without more information.
D)the firm's use of labour and capital is cost- efficient.

Question

Quizplus · Accepted Answer

The marginal product per dollar for labour is 12 units/$6 = 2 units per dollar, and for capital is 15 units/$3 = 5 units per dollar. Since capital has a higher marginal product per dollar spent, the firm should use more capital and less labour to be more cost-efficient.

A Firm Is Currently Producing 200 Units of Output Using