A manager hires labor and rental capital equipment in a very competitive market. Currently, the wage...

A manager hires labor and rental capital equipment in a very competitive market. Currently, the wage rate is $20/hour and capital is rented at $10/hour. If the marginal product of labor if 50 units of output per hour and the marginal product of capital is 100 units of output per hour, is the firm using the cost-minimizing combination of labor and capital? If not, should the firm increase or decrease the amount of capital used in its production process?

A manager hires labor and rental capital equipment in a very competitive market. Currently, the wage rate is $10/hour and capital is rented at $20/hour. If the marginal product of labor if 200 units of output per hour and the marginal product of capital is 100 units of output per hour, is the firm using the cost-minimizing combination of labor and capital? If not, should the firm increase or decrease the amount of capital used in its production process?

Expert Solution

Rahul Sunny answered 2 years ago

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