If labor costs twice as much as capital (per unit),then,in the long run,
A) labor will be half as productive as capital.
B) labor's marginal product will be twice that of capital.
C) the firm will hire twice as much labor as capital.
D) the firm will hire less labor and more capital.

Question

Quizplus · Accepted Answer

The law of diminishing marginal returns states that as additional units of a variable resource are added to a fixed resource, the marginal product of the variable resource eventually decreases. Therefore, if labor costs twice as much as capital, the firm will substitute capital for labor until the marginal product of labor is twice that of capital. Thus, choice B is the best answer.

If Labor Costs Twice as Much as Capital (Per Unit),then,in