At the XYZ Co. ,a unit of capital costs three times as much as a unit of labor.If the isoquants are convex,and the firm does not change its input mix in the long run,we can conclude that A)MP_K = 3 ∗ MP_L . B)the firm will not hire any capital. C)the firm will hire 3 times as much labor as capital. D)the firm will hire 3 times as much capital as labor.

Question

Quizplus · Accepted Answer

The correct answer is A because in the context of production theory, the marginal rate of substitution (MRS) between capital and labor must equal the ratio of their prices for a firm to minimize costs while maintaining a certain level of output. Since a unit of capital costs three times as much as a unit of labor, the firm will adjust its capital and labor inputs so that the MRS (the rate at which labor can be substituted for capital without changing output) equals this price ratio. This ensures the firm is on the lowest possible isocost line for a given level of output, which is a condition for cost minimization in the long run when the firm does not change its input mix.