Suppose that capital costs $10 per unit and labour costs $4 per unit.If the marginal product of capital is 50 and the marginal product of labour is 50,the firm should ________ in order to minimize its costs of producing its output.
A)employ more capital and labour
B)employ less 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 (50/4 = 12.5) is greater than that on capital (50/10 = 5). This indicates that labour is more cost-effective than capital.

Suppose That Capital Costs $10 Per Unit and Labour Costs