The correct option that defines the action that firm should take if it is producing desired level of output at given MPL, MPK, wage rates and rental rate.
Answer to Problem 20MCQ
Option e is correct.
Explanation of Solution
Explanation for correct option:
e.
To satisfy the minimum cost criteria, firm should equalize the MPL/W and MPK/K. In this case,
Thus, firm should continue with employing current amount of labor and rent current amount of capital. Therefore, option e is incorrect.
Explanation for incorrect options:
a.
Since MPL/W is equal to MPK/K there is no scope for employing more labor and renting more capital. Therefore, option a is incorrect.
b.
Since MPL/W is equal to MPK/K there is no scope for employing less labor and renting less capital. Therefore, option b is incorrect.
c.
Since MPL/W is equal to MPK/K there is no scope for employing less labor and renting more capital. Therefore, option c is incorrect.
d.
Since MPL/W is equal to MPK/K there is no scope for employing more labor and renting less capital. Therefore, option d is incorrect.
Factor of production: Factor of production refers to the components or the resources that are required for producing intangible or tangible products.
Factor income: Factor income refers to returns received by the producer for inserting each factor of production as an input.
Chapter 13R Solutions
Krugman's Economics For The Ap® Course
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