29. Consider a firm minimising the cost of production, given factor prices. For this firm, the following is observed: MPL MPK w where w is the wage rate, r is the rental rate of capital, MPı is the marginal product of labour and MPx is the marginal product of capital. To minimise the cost of production, what should this firm do? a) Pay higher wages. c) Use more labour and less capital. b) Pay lower rental rate of capital. d) Use less labour and more capital.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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29. Consider a firm minimising the cost of production, given factor prices. For this firm, the
following is observed:
MPL MPK
where w is the wage rate, r is the rental rate of capital, MPL is the marginal product of labour
and MPx is the marginal product of capital. To minimise the cost of production, what should
this firm do?
a) Pay higher wages.
c) Use more labour and less capital.
b) Pay lower rental rate of capital.
d) Use less labour and more capital.
Transcribed Image Text:29. Consider a firm minimising the cost of production, given factor prices. For this firm, the following is observed: MPL MPK where w is the wage rate, r is the rental rate of capital, MPL is the marginal product of labour and MPx is the marginal product of capital. To minimise the cost of production, what should this firm do? a) Pay higher wages. c) Use more labour and less capital. b) Pay lower rental rate of capital. d) Use less labour and more capital.
Expert Solution
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The factors of production are the inputs or resources used in production process. The production process demands work from labor, capital, and entrepreneurs. The natural resources required for it are summarized as land in factors of production.

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