Heavenly Delights, an ice cream maker, has discovered that the ratio of the marginal product of labor to the price of labor is 4.5, while the ratio of the marginal product of capital to the price of capital is 6.9.The firm has determined that it does not want to change its total costs.Heavenly Delights should:
A) do nothing; the differences in the ratios of marginal product to input price are too small to matter.
B) use more labor and less capital.
C) use more capital and less labor.
D) give up ice cream production and produce broccoli instead.

Question

Quizplus · Accepted Answer

The ratio of marginal product to input price is higher for capital than for labor, indicating that using more capital and less labor would result in a lower total cost without decreasing the level of output. Therefore, Heavenly Delights should use more capital and less labor.

Heavenly Delights, an Ice Cream Maker, Has Discovered That the Ratio