Economics 20th Edition by Campbell McConnell ,Stanley Brue ,Sean Flynn

Exercise 4

Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm's capacity. If he adds one more worker, the firm's total monthly revenue will increase from $50,000 to $58,000. If he adds one more tractor, monthly revenue will increase from $50,000 to $62,000. Additional workers each cost $4000 per month, while an additional tractor would also cost $4000 per month. L05
a. What is the marginal product of labor? The marginal product of capital?
b. What is the ratio of the marginal product of labor: to the price of labor (MP L /P L )? What is the ratio of the marginal product of capital to the price of capital (MP K /P K )?
c. Is the firm using the least-costly combination of inputs?
d. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent?