Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day.The price of labour is $5 per unit and the price of capital is $2 per unit.The MPL equals 5 and the MPK equals 2.In this situation,the firm
A)could lower its production costs by increasing labour input and decreasing capital input.
B)is minimizing its costs.
C)could lower its production costs by decreasing labour input and increasing capital input.
D)should increase the use of both inputs.
E)should decrease the use of both inputs.

Question

Quizplus · Accepted Answer

The firm is minimizing its costs because the MPL/P(L) = MPK/P(K).

Suppose That a Firm Is Using 100 Units of Labour