Question

Suppose a firm is producing 2,475 units of output by hiring 50 workers (W = $20 per hour) and 25 units of capital (R = $10 per hour). The marginal product of labor and marginal product of capital are 40 and 25, respectively. Is the firm minimizing the cost of producing 2,475 units of output?

Answer 1

given,

firm is producing = 2,475 units

output by hiring 50 workers W = $20 per hour

25 units of capital R = $10 per hour

marginal product of labor = 40

marginal product of capital = 25

`(MP_l)/(MP_c)=(40)/(25)`

`(MP_l)/(MP_c)=(8)/(5)`

`(W)/(R)=(20)/(10)`

`(W)/(R)=2`

`(MP_l)/(MP_c) < (W)/(R)`

Firm is not minimizing the cost because the firm use more capital and less labor.