To determine whether the firm should increase, decrease, or leave unchanged the amount of capital used in its production process, we need to consider the marginal product of capital and the cost of capital.
The marginal product of capital is the additional units of output that can be produced by adding one more unit of capital to the production process. In this case, the marginal product of capital is 55 units of output per hour.
The cost of capital is the rental cost of capital equipment per hour, which is given as $27 per hour.
To make an optimal decision, the firm should compare the marginal product of capital with its cost. If the marginal product of capital is greater than its cost, the firm should increase its use of capital. However, if the marginal product of capital is lower than its cost, the firm should decrease its use of capital.
In this scenario, the marginal product of capital (55 units) is less than the cost of capital ($27 per hour). This indicates that the additional output produced from adding one more unit of capital is not sufficient to justify the cost of renting that unit. Therefore, the firm should decrease its use of capital to reduce costs and achieve a more efficient production process.