Suppose that capital costs $6 per unit and labour costs $3 per unit.If the marginal product of capital is 3 and the marginal product of labour is 6,the cost-minimizing firm should
A)employ more of both capital and labour.
B)employ less of both capital and labour.
C)employ more capital and less labour.
D)employ less capital and more labour.
E)not change its current factor use.

Question

Quizplus · Accepted Answer

The firm should employ less capital and more labour because the marginal product per dollar spent on labour (6/3 = 2) is higher than that on capital (3/6 = 0.5), indicating labour is more cost-effective.

Suppose That Capital Costs $6 Per Unit and Labour Costs