Question

A firm sells its output in a perfectly competitive market and hires two inputs, capital and labor, in perfectly competitive factor markets. The product price is $15 per unit, the wage is $75 per day, and the marginal product of capital is 3. If the firm is choosing the least-cost combination of labor and capital, the firm's marginal product of labor and the price of capital must be equal to which of the following?

(A) Marginal Product of Labor = 25 ; Price of Capital = $5
(B) Marginal Product of Labor = 25 ; Price of Capital = $45
(C) Marginal Product of Labor = 5 ; Price of Capital = $15
(D) Marginal Product of Labor = 5 ; Price of Capital = $25
(E) Marginal Product of Labor = 5 ; Price of Capital = $45

Answer 1

E. Marginal Product of Labor = 5 ; Price of Capital = $45

Step-by-step explanation:

The product has price of $15 per unit in the market. The market is assumed to be in perfect competition and wage rate of labor is $75 per day. The marginal product of labor is $75/ $15 = $5. The marginal product of capital is 3 the the price of capital is $15 * 3 = $45