Alan's Roast House sells roasted peanuts in a competitive market. The firm employs labor ata wage rate of $6 per hour and rents capital for $15 per hour
At its current level of labor and capital, the marginal product of labor is 12 and the marginal product of capital is 40 . Is the firm currently maximizing profit? Explain.
No, the firm is not currently maximizing profit. The firm should hire labor and capital such that MPL/PL is equal to MPK/PK. In this case, MPL/PL (2) is less than MPK/PK (2.67). Thus, the firm should hire less labor (which would raise MPL) and more capital (which would lower MPK).
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Increasing the stock of capital while holding the labor force constant will ________ output at a(n) ________ rate
A) decrease; increasing B) increase; increasing C) increase; decreasing D) decrease; decreasing
The evidence from hyperinflations indicates that money growth and inflation
a. are positively related, which is consistent with the quantity theory of money. b. are positively related, which is not consistent with the quantity theory of money. c. are not related in a discernible fashion, which is consistent with the quantity theory of money. d. are not related in a discernible fashion, which is not consistent with the quantity theory of money.