Suppose that capital costs $10 per unit and labour costs $5 per unit.For a profit-maximizing firm operating at its optimal factor mix,if the marginal product of capital is 50,the marginal product of labour must be
A)10.
B)20.
C)25.
D)50.
E)100.

Question

Quizplus · Accepted Answer

To maximize profits, the firm must use its factors of production in such a way that the marginal cost of each factor equals its marginal revenue product. That is,
Marginal Product of Capital / Price of Capital = Marginal Product of Labour / Price of Labour
Substituting the given values, we get:
50/10 = MPL/5
This simplifies to MPL = 25. Hence, the answer is C) 25.

Suppose That Capital Costs $10 Per Unit and Labour Costs