Suppose MPL = 20 and MPK = 40 and the rental rate on capital is $10. If the level of production is currently efficient,the wage rate must be

Question

Quizplus · Accepted Answer

To determine if the current level of production is efficient, we can use the formula MPL/PL = MPK/PK, where PL is the wage rate and PK is the rental rate on capital.

Substituting the given values, we get:

20/PL = 40/10
20/PL = 4
PL = 5

Therefore, the wage rate must be $5 for the current level of production to be efficient. Answer choice B is the correct choice.

Suppose MPL = 20 and MPK = 40 and the Rental