A cost- minimizing firm will increase its use of labour and decrease its use of capital when the
A)marginal product of capital,per dollar spent on capital,is less than the marginal product of labour,per dollar spent on labour.
B)average product of capital is higher than the average product of labour.
C)marginal product of capital is higher than the marginal product of labour.
D)marginal product of capital,per dollar spent on capital,is greater than the marginal product of labour,per dollar spent on labour.
E)total product of capital is higher than the total product of labour.

Question

Quizplus · Accepted Answer

The marginal product of capital, per dollar spent on capital, is less than the marginal product of labour, per dollar spent on labour. This means that the firm can get more output per dollar spent on labour than it can per dollar spent on capital. Therefore, the firm will increase its use of labour and decrease its use of capital.

A Cost- Minimizing Firm Will Increase Its Use of Labour