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You are an efficiency expert hired by a firm in the clothing industry that uses machines (K) and workers (L) as inputs. The firm has estimated that the marginal product of labor is MPL = 120 - 4 L, while the marginal product of capital is MPK = 50 - 5 K. The firm is currently using 25 units of L and 7 units of K. If w = $20, r = $15 then

a. the firm is minimizing the cost of producing the given quantity of output.

b. the firm should use less L and more K to minimize the cost of producing the given quantity of output

c. the firm should use less K and more L to minimize the cost of producing the given quantity of output

d. the firm is profit maximizing but not cost minimizing

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Anne Gillian Duero
Anne Gillian DueroLv10
28 Sep 2019

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Related questions

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 4, and MPK = 40 the firm:

A.) Is cost-minimizing.

B.) Should use less L and more K to cost minimize.

C.) Should use more K and less L to cost minimize.

D.) Is profit-maximizing but not cost-minimizing.

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