Consider a Firm That Uses Only Labour and Capital as Inputs

question 99

Multiple Choice

Consider a firm that uses only labour and capital as inputs. At the present use of labour and capital, the MP of labour is four times the MP of capital, and the price of labour is twice the price of capital. In order to minimize its costs, the firm should

• A) decrease capital and increase labour.
• B) substitute capital for labour until their marginal products are equal.
• C) stay at its present factor mix.
• D) decrease both capital and labour.
• E) increase both labour and capital.

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