Explain Why in the Long Run a Firm That Is

question 19

Essay

Explain why in the long run a firm that is cost minimizing will choose K and L where:
w/MPL = r/MPK
What does this tell you about the marginal cost of increasing output through hiring labor and the marginal cost of increasing output through adding capital?

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Definitions:

Average Rate of Return

The average rate of return is a financial ratio that calculates the return, typically on an investment, over a specific period of time expressed as a percentage of the initial cost.

Automatic Insertion Machine

A machine used in manufacturing for automatically placing components onto circuit boards or into their correct positions on a production line.

Accountant

A professional responsible for maintaining and interpreting financial records, ensuring accuracy and compliance with laws and regulations.

Net Present Value

The calculation used to find today’s value of a stream of future payments or receipts, by discounting them using a specific rate of return.