If a firm is using labour and capital such that the MP of labour is two times the MP of capital,and the price of labour is four times the price of capital,the firm should in order to minimize its costs of producing its output.
A)decrease capital and increase labour
B)not alter its present factor mix
C)decrease both capital and labour
D)increase capital and decrease labour
E)increase both labour and capital

Question

Quizplus · Accepted Answer

The firm should increase capital and decrease labour because the marginal product per dollar spent on capital is higher than that on labour, given that the MP of labour is twice that of capital but labour is four times more expensive.

If a Firm Is Using Labour and Capital Such That