Question

5. A firm currently produces its desired level of output. Its marginal product of labor is 400, its marginal product of capital is 1,000, the wage rate is $20 and the rental rate of capital is $100. In this case, the firm should: a. employ more capital and more labor. b. employ less labor and less capital. c. employ less labor and more capital. d. employ less capital and more labor. e. not change its allocation of capital and labor

Answer 1

D.

Step-by-step explanation:

Firms will hire more labor when the marginal revenue product of labor is greater than the wage rate, and stop hiring as soon as the two values are equal.