Asked by Trevor Debelak on Jun 19, 2024
Verified
A firm is operating such that the marginal product of labor is 10 and the marginal product of capital is 20. The firm is minimizing its costs only if
A) the wage is half the rental rate.
B) the rental rate is half the wage.
C) since capital is more productive than labor, the firm must be minimizing cost.
D) Given this information the firm can't be minimizing cost under any circumstances.
Marginal Product
The additional output produced by employing one more unit of a particular input, holding other inputs constant.
Wage
A fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to manual or unskilled workers.
Rental Rate
The cost associated with leasing a particular commodity, property, or piece of equipment per unit time.
- Scrutinize the method employed by a firm to cut costs, considering the marginal product and the price of resources.
Verified Answer
KA
Kwabena AsareJun 25, 2024
Final Answer :
A
Explanation :
The firm minimizes costs when the ratio of the marginal product of labor to the wage is equal to the ratio of the marginal product of capital to the rental rate. Given the marginal products, the wage must be half the rental rate for these ratios to be equal.
Learning Objectives
- Scrutinize the method employed by a firm to cut costs, considering the marginal product and the price of resources.