Answer the question on the basis of the following data: $\begin{array}{cccccc}
Quantity &MP of& MRP of &\text{Quantity of}& MP of &MRP of\
of Labor& Labor& Labor& Capital &Capital &Capital\
\hline
1 & 15 & \$ 45 & 1 & 8 & \$ 24 \
2 & 12 & 36 & 2 & 6 & 18 \
3 & 9 & 27 & 3 & 5 & 15 \
4 & 6 & 18 & 4 & 4 & 12 \
5 & 3 & 9 & 5 & 3 & 9 \
6 & 1 & 3 & 6 & 2 & 6
\end{array}$ Refer to the given data.If the prices of labor and capital are $9 and $15 respectively,the profit-maximizing firm will hire:
A) 5 units of labor and 3 of capital.
B) 5 units of labor and 2 of capital.
C) 4 units of labor and 4 of capital.
D) 3 units of labor and 4 of capital.

Question

Quizplus · Accepted Answer

To maximize profit, a firm will hire labor and capital up to the point where the marginal product (MP) per dollar spent is equalized across both inputs. The MP per dollar spent on labor and capital can be calculated by dividing the MP by the price of each input. For labor at $9: MP/$ = 15/9, 12/9, 9/9, 6/9, 3/9, 1/9 for each unit respectively. For capital at $15: MP/$ = 8/15, 6/15, 5/15, 4/15, 3/15, 2/15 for each unit respectively. The firm will hire up to the point where the MP per dollar spent starts to decrease, which is 5 units of labor (3/9) and 3 units of capital (5/15).

Answer the Question on the Basis of the Following Data