Consider a firm that uses only labour and capital.At the present use of labour and capital,the MP of labour is two times the MP of capital,and the price of labour is two times the price of capital.In order to minimize its costs,the firm should
A)not alter its present factor mix.
B)decrease capital and increase labour.
C)substitute capital for labour until their marginal products are equal.
D)increase both labour and capital.
E)decrease both capital and labour.

Question

Quizplus · Accepted Answer

The firm is already minimizing costs because the ratio of the marginal product of labor to its price is equal to the ratio of the marginal product of capital to its price.

Consider a Firm That Uses Only Labour and Capital