Question

If the marginal product per dollar spent on capital is more than the marginal product per dollar spent on labor, then in order to minimize costs the firm should use:a) less capital and more laborb) less labor and more capitalc) less labor and less capitald) more labor and more capital

Answer 1

The correct answer is letter "A": less capital and more labor.

Step-by-step explanation:

Companies minimize costs when the quantity of dollars spent on capital equals the quantity of dollars spent on labor. The cost minimization does not leave behind the level of quality of the output. For a firm to keep the balance, adjustments in the quantity spent on capital or labor should be increased or reduced.

In the example, as the quantity of dollars spent on capital is higher than labor, the company must increase labor and lower capital to minimize costs.