Assume that Donnell Corp. is currently producing 500 units of output per period, using 25 units of labor and 20 units of capital. Values for the marginal product of each input and the prices of the inputs are as follows: MPK = 100, MPL = 200, w = 2, and r = 3. Given the information above, which of the following is true? a. The firm is currently using the optimal levels of capital and labor. b. The firm should increase labor and reduce capital usage. c. The firm is not using the optimal levels of capital and labor, and it is impossible to determine the optimal levels from the given information.

Assume that Donnell Corp. is currently producing 500 units of output per period, using 25 units of labor and 20 units of capital. Values for the marginal product of each input and the prices of the inputs are as follows: MPK = 100, MPL = 200, w = 2, and r = 3. Given the information above, which of the following is true? a. The firm is currently using the optimal levels of capital and labor. b. The firm should increase labor and reduce capital usage. c. The firm is not using the optimal levels of capital and labor, and it is impossible to determine the optimal levels from the given information.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.9P

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