Suppose that the price of labor (PL) is $7 while the price of capital (PK) is $10. Also, suppose that the marginal product of labor (MPL) is 20 while the marginal product of cap…

Question

asked Feb 15, 2022 94.2k views

1 Answer

Eddinho · Answer 1 · 2022-02-19T22:09:54+0000

Answer:

The answer is "use more capital, less labor".

Step-by-step explanation:

labor price
$(PL) = \$7\\\\$

Capital price
$(PK) = \$10\\\\$

Marginal product of labor:
$(MPL) = 20\\\\$

Marginal product of capital:
$(MPK) = 30\\\\$

Calculating the ratio of the product marginal labor and labor price:

$= (MPL)/(PL) = (20)/(7) = 2.86\\\\$

Calculating the ratio of the product marginal capital and capital price:

$= (MPK)/(PK) = (30)/(10) = 3\\\\$

The company maximises profit using the quantity of work and capital that matches the necessary responsibilities.

(MPL)/(PL) = (MPK)/(PK)

However, in the given case,

(MPL)/(PL) < (MPK)/(PK)

In this instance, therefore, the business should raise the quantity of capital and cut the quantity of effort.