Suppose the marginal product of labor is 10 and the marginal product of capital is 8.If the wage rate is $5 and the price of capital is $2, then in order to minimize costs the firm should use
A)more capital and less labor.
B)more labor and less capital.
C)equal amounts of labor and capital.
D)none of the statements associated with this question are correct.

Question

Quizplus · Accepted Answer

To minimize costs, the firm should equate the ratio of marginal product to price for both labor and capital. The ratio for labor is 10/5 = 2, and for capital, it is 8/2 = 4. Since the ratio for capital is higher, the firm should use more capital and less labor.

Suppose the Marginal Product of Labor Is 10 and the Marginal