If the marginal rate of technical substitution of labor for capital (MRTS_LK)exceeds the relative price of labor in terms of capital (P_L/P_K),then A) the firm's long-run average cost curve is rising. B) the firm is producing its output at the least possible cost,but the firm should reduce its output level to increase its profits. C) the firm has increased its output level beyond the point of diminishing marginal returns. D) the firm needs to use less capital and more labor to reach its expansion path.

Question

Quizplus · Accepted Answer

If the marginal rate of technical substitution of labor for capital exceeds the relative price of labor in terms of capital, it means that the firm can produce more output by using less capital and more labor. Therefore, the firm needs to use less capital and more labor to reach its expansion path. This will result in a more efficient production process and lower costs in the long run.

If the Marginal Rate of Technical Substitution of Labor for Capital