The firm could decrease the cost of production holding outpu

The firm could decrease the cost of production holding output constant by using more _____________ and less __________.

A firm produces output with capital and labor. Suppose currently the marginal product of labor is 13 and the marginal product of capital is 5. Each unit of labor costs $11 and each unit of capital costs $3. Is the firm minimizing the cost of production? Explain Let MPk be the marginal product of capital, MPL be the marginal product of labor, r be the price of capital, w be the cost of labor, and MRTS be the marginal rate of technical substitution The firm is MPK MPL not minimizing the cost of production because-->- MP O B. not minimizing the cost of production because MRTS MP MP MP MPK MPL O C. minimizing the cost of production because MRTS minimizing the cost of production because> MPK MPL minimizing the cost of production because_ ? E. If not how could the firm decrease the cost of nroduction holdina outnut constant?

Solution

MRTS=MPL/MPK=13/5=2.6

w/r=11/3=3.7

MRTS=MPL/MPK<w/r it means this combination isnt cost minimising

hence option A is correct response

the firm could decrease the cost of production holding output constant by using more capital and less labour