Question
Suppose that a firm currently employs 900 units of capital and 540 units of labor, and has a marginal product of labor of MP L
Suppose that a firm currently employs 900 units of capital and 540 units of labor, and has a marginal product of labor of MPL= 10 and a marginal product of capital of MPK= 8. If the wage rate is w = $24 and the user cost of capital is r = $15, clearly explain how the firm could produce more output without increasing its costs.
[Note: I'm only looking for a qualitative answer here; the information provided is not sufficient to calculate the optimal combination of capital and labor, only to indicate the direction in which the firm should adjust its input mix.]
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