A manufacturer of toys is employing 50 workers and using 15

A manufacturer of toys is employing 50 workers and using 15 pleces of equipment to assembie toys. Currently, the marginal product of labor lis $15 and the marginal proct f captal ls 515. Assume the market prices for labor and capital are $12 and $20, respectively Is this firm maximizing its profit?

Solution

Ans: No

Explanation:

No, the firm is not maximizing profit, because here the profit maximization condition ,i.e., MP_L = MC_L and MP_K = MC_K is not satisfied.

Here, MP of labor is greater than the MC of labor and MP of capital is less than the MC of capital.

Therefore, the firm is not maximizing profit.