Chapter 72, Problem 3MCQ

To determine

The correct option for a firm when its desired level of output and the marginal product of labor per dollar are greater than the marginal product of capital per dollar.

Answer to Problem 3MCQ

From the available options, the correct option is the firm should employ more labor and less capital.

Explanation of Solution

A firm should employ more labor and less capital because to attain or maximize the profit it needs to hire more labor that will increase the level of output. Whereas, if a firm hires less labor, then the output also declines and a firm cannot attain an increase in the desired level of output without hiring more labor. An increase in labor would also increase the marginal product of capital.

Therefore, the correct option is c (the firm should employ more labor and less capital)

Economics Concept Introduction

Introduction: Marginal product is the extra benefit or output that a firm can earn by adding one additional unit of the input to the existing productive factors such as labor.