3. Theo employs labor at a competitive wage (W) of $3 per unit, and he employs capital at a competitive rental rate (R) of $6 per unit. a. State the cost-minimizing rule. You must provide both a written statement of it, and state it as an equation. b. At Theo’s current combination of labor and capital, the marginal product of labor (MPL) is twice as large as the marginal product of capital (MPK). Is Theo currently employing the optimal ratio of labor and capital? If not, how should he adjust his hiring of labor and/or capital? Explain.
3. Theo employs labor at a competitive wage (W) of $3 per unit, and he employs capital at a competitive rental rate (R) of $6 per unit. a. State the cost-minimizing rule. You must provide both a written statement of it, and state it as an equation. b. At Theo’s current combination of labor and capital, the marginal product of labor (MPL) is twice as large as the marginal product of capital (MPK). Is Theo currently employing the optimal ratio of labor and capital? If not, how should he adjust his hiring of labor and/or capital? Explain.
Chapter11: The Firm: Production And Costs
Section: Chapter Questions
Problem 5P
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3. Theo employs labor at a competitive wage (W) of $3 per unit, and he employs capital
at a competitive rental rate (R) of $6 per unit.
a. State the cost-minimizing rule. You must provide both a written statement of it, and state it as an
equation.
b. At Theo’s current combination of labor and capital, the marginal product of labor (MPL) is twice
as large as the marginal product of capital (MPK). Is Theo currently employing the optimal ratio of
labor and capital? If not, how should he adjust his hiring of labor and/or capital? Explain.
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