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Suppose a Firm Is Employing Labour (L)and Capital (K)such That

Question 17

Multiple Choice

Suppose a firm is employing labour (L) and capital (K) such that MPK/MPL = PK/PL.If the price of labour rises,the cost-minimizing firm should then


A) employ more labour and less capital because MPK/MPL > PK/PL.
B) employ more capital and less labour because MPK/MPL > PK/PL.
C) employ more labour and less capital because MPK/MPL < PK/PL.
D) employ more capital and less labour because MPK/MPL < PK/PL.
E) do nothing.

Correct Answer:

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