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Suppose the firm currently employs 500 workers and 100 units of capital. Then, let us assume that the expression below holds true: W/MPL = 16/4

Suppose the firm currently employs 500 workers and 100 units of capital. Then, let us assume that the expression below holds true:

W/MPL = 16/4 = 4 < C/MPK= 50/10 = 5.

Discuss that the firm is not at an equilibrium mix of labor and capital by showing there is a window of opportunity for it to reduce its total cost.

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