7.32. A firm operates with a technology that is characterized by a diminishing marginal rate of technical

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7.32. A firm operates with a technology that is characterized by a diminishing marginal rate of technical substitution of labor for capital. It is currently producing 32 units of output using 4 units of capital and 5 units of labor. At that operating point the marginal product of labor is 4 and the marginal product of capital is 2. The rental price of a unit of capital is 2 when the wage rate is 1. Is the firm minimizing its total long-run cost of producing the 32 units of output? If so, how do you know? If not, show why not and indicate whether the firm should be using (i) more capital and less labor, or (ii) less capital and more labor to produce an output of 32.

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Microeconomics

ISBN: 9780470563588

4th Edition

Authors: David Besanko, Ronald Braeutigam

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