Question

Suppose that the production of wheat requires two inputs, labor and fertilizer. The price of labor is $4.50 and the price of fertilizer is $3.00. A farmer is currently employing the inputs such that the marginal product of labor is 11 and the marginal product of fertilizer is 8. If the farmer is a cost-minimizer, he should:

Answer 1

The farmer should use more fertilizer and less labor.

Step-by-step explanation:

The production of wheat requires two inputs, labor and fertilizer.

The price of labor is $4.50 and the price of fertilizer is $3.00.

A farmer is currently employing the inputs such that the marginal product of labor is 11 and the marginal product of fertilizer is 8.

The ratio of price to marginal product for labor

=
`(11)/(4.5)`

= 2.44

The ratio of price to marginal product for fertilizer

=
`(8)/(3)`

= 2.66

Since the ratio for fertilizer is higher than labor, it implies that fertilizer is providing more benefit to the farmer as compared to labor. So the farmer should use more fertilizer.