Question

You know that the rental price of capital is $3,000, the rental price of land is $2,000, and the wage of labor is $100. The value of the marginal product produced by each factor is $30,000, $4,000, and $200, respectively. You would advise the company to hire more Group of answer choices land. less capital and more labor. labor. capital. less labor and more land.

Answer 1

More capital.

Step-by-step explanation:

Per dollar of input addition of output:

= Value of Marginal Product of Labor ÷ price of input

Per dollar of input of capital adds to output:

= 30,000 ÷ 3,000

= 10

Per dollar of input of land adds to output:

= 4000 ÷ 2000

= 2

Per dollar of input of labor adds to output:

= 200 ÷ 100

= 2

A firm hires where it the per dollar addition to the output from each input is equal.

But here the addition from capital is higher than the land and labor, so the firm should hire more capital.