Question
If the marginal product of labor is 2, the marginal product of capital is 4, the wage rate is INR 3, the rental price of capital is INR 6, and the price of output is INR 1.50, then the firm should
Answer: Option D
:
D
Cost of hiring one additional unit of labour = Rs 3
Revenue from hiring an additional unit of labour
= MP of labour x price = Rs 3
Cost of renting oneadditional unit of capital = Rs 6
Revenue from renting an additional unit of capital
= MP of capital x price = Rs 6
Hence, there is no benefit in increasing labour or capital.
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:
D
Cost of hiring one additional unit of labour = Rs 3
Revenue from hiring an additional unit of labour
= MP of labour x price = Rs 3
Cost of renting oneadditional unit of capital = Rs 6
Revenue from renting an additional unit of capital
= MP of capital x price = Rs 6
Hence, there is no benefit in increasing labour or capital.
Was this answer helpful ?
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