Refer to the given data. Assume that price of labor (PL=$9) and price of capital PC=$12). Profit maximizing combination of labor and capital this firm will hire is:

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Group of answer choices

L=4 and C=4.

L=5 and C=4.

L=4 and C=5.

L=5 and C=5.

Any firm would chose that combination of labor and capital, that would minimize its cost of production.

Let the given information in the question formulized in the below table, which shows :

L = Labor Units , C = Capital Units

PL = Price of Labor, PC = Price of Capital

Labor Cost = Labor Units * Price of Labor

Capital Cost = Capital Units * Price of Capital

Toal Cost = Labor Cost + Capital Cost

From the above table we can see that with the given prices of labor and capital, L= 4 and C = 4 gives the least total cost of $84 as compared to other combinations. Thus firm would prefer to hire 4 units of capital and 4 units of labor, to maximize its profits.

Rahul Sunny answered 1 year ago

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PL($)

PC($)

Labor Cost

Capital Cost

Total Cost ($)

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