Question

Suppose a chair manufacturer finds that the marginal rate of technical substitution​ (MRTS) of capital for labor in her production process is substantially less than the ratio of the wage rate for​ assembly-line labor​ (w) to the rental rate on machinery​ (r). How should she alter her use of labor and capital to minimize the cost of​ production?

Answer 1

Answer and Explanation:

Answer and Explanation:

From the question;

MRTs of capital labor > r/w

Therefore MPK/MPL > r/w

MPL/w> MPK/r

The manufacturer earns more from the marginal capital than from labor so she should use more capital less labor to minimize production costs.