(appendix)If the marginal rate of technical substitution of labor for capital is greater than the price of labor relative to the price of capital,then the firm can produce the same level of output at lower total cost by using:
A)more capital and less labor
B)less capital and more labor
C)more capital and more labor
D)less capital and less labor

Question

Quizplus · Accepted Answer

According to the statement, the marginal rate of technical substitution of labor for capital is greater than the price of labor relative to the price of capital. This means that the firm can substitute labor for capital at a lower cost. Therefore, the firm should use more labor and less capital to produce the same level of output at a lower total cost. Hence, the best choice is B.

(Appendix)If the Marginal Rate of Technical Substitution of Labor for Capital