The firm should decrease the amount of capital used.
Solution:
The wage rate is $12 per hour and capital is rented at $8 per hour.
The marginal product of labour is 45 units of output per hour and the marginal product of capital is 65 units of output per hour.
A manager hires labour and rents capital equipment in a very competitive
market.
The ratio of marginal product of labour and wage rate
=
= 3.75
The ratio of marginal product of capital and rent
=
= 8.125
If the cost ratio is higher, it means that the boss must minimize the volume of money involved in the manufacturing process.