A firm is operating such that the marginal product of labor is 10 and the marginal product of capital is 20. The firm is minimizing its costs only if
A) the wage is half the rental rate.
B) the rental rate is half the wage.
C) since capital is more productive than labor, the firm must be minimizing cost.
D) Given this information the firm can't be minimizing cost under any circumstances.

Question

Quizplus · Accepted Answer

The firm minimizes costs when the ratio of the marginal product of labor to the wage is equal to the ratio of the marginal product of capital to the rental rate. Given the marginal products, the wage must be half the rental rate for these ratios to be equal.

A Firm Is Operating Such That the Marginal Product of Labor