A firm currently uses 40 units of labor (L) and 20 units of capital (K) to produce 400 units of output. Input prices equal $30 for labor and $60 for capital, while the marginal products are 6 for labor and 3 for capital. To minimize the cost of producing its current level of output, should the firm use more L and less K, more K and less L, or leave its input combination unchanged? Explain your answer.
A firm currently uses 40 units of labor (L) and 20 units of capital (K) to produce 400 units of output. Input prices equal $30 for labor and $60 for capital, while the marginal products are 6 for labor and 3 for capital. To minimize the cost of producing its current level of output, should the firm use more L and less K, more K and less L, or leave its input combination unchanged? Explain your answer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A firm currently uses 40 units of labor (L) and 20 units of capital (K) to produce 400 units of
output. Input prices equal $30 for labor and $60 for capital, while the marginal products are 6 for labor and 3 for
capital. To minimize the cost of producing its current level of output, should the firm use more L and less K,
more K and less L, or leave its input combination unchanged? Explain your answer.
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