A firm produces 15 units of output from the last dollar it spends on labor and 10 units from the last dollar spent on capital. The firm should
A) employ more labor and less capital.
B) employ more capital and less labor.
C) employ more capital and labor.
D) employ less capital and labor.

Question

Quizplus · Accepted Answer

The firm should employ more labor and less capital because the marginal product of labor per dollar (15 units) is higher than the marginal product of capital per dollar (10 units), indicating labor is currently a more efficient use of funds.

A Firm Produces 15 Units of Output from the Last