Suppose the wage rate is $15 per hour and the rental rate of capital is $10 per hour.If the marginal product of labor is 60 and the marginal product of capital 10,the profit maximizing firm should:
A)hire more labor and less capital.
B)utilize more capital and less labor.
C)maintain its current input mix of capital and labor.
D)employ more of both capital and labor.

Question

Quizplus · Accepted Answer

The firm should hire more labor and less capital because the marginal product of labor (60) is greater than the marginal product of capital (10), while the wage rate ($15) is higher than the rental rate of capital ($10), indicating that labor is relatively cheaper than capital. By hiring more labor and less capital, the firm can increase its output while minimizing its costs and maximizing its profits.

Suppose the Wage Rate Is $15 Per Hour and the Rental