If a firm is using labour and capital such that the MP of labour is two times the MP of capital,and the price of labour is four times the price of capital,the firm should ________ in order to minimize its costs of producing its output.
A)increase capital and decrease labour
B)decrease both capital and labour
C)decrease capital and increase labour
D)increase both labour and capital
E)not alter its present factor mix

Question

Quizplus · Accepted Answer

The firm should increase capital and decrease labour because the marginal product per dollar spent on capital is higher than that on labour, indicating that the firm can reduce costs by using more capital and less labour.

If a Firm Is Using Labour and Capital Such That