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slava [35]
3 years ago
12

Suppose that the price of labor is $7 for a firm, while the price of capital for a firm is $10. Also suppose that the Marginal P

roduct of Labor is 20, while the Marginal Product of Capital is 30. What is the best advice for this profit-maximizing firm?
Business
1 answer:
Slav-nsk [51]3 years ago
4 0

Answer:

The best advice for this profit-maximizing firm is:

Use more capital than labor.

Explanation:

a) Data and Calculations:

Price of labor = $7

Price of capital = $10

Marginal product of labor = 20

Marginal product of capital = 30

Productivity of labor = Output/Input

= 20/7

= 2.86

Productivity of capital = Output/Input

= 30/10

= 3

b) Capital is more productive than labor.  The productivity of capital is 3 when compared to the productivity of labor, that is 2.86.

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