Suppose a firm finds that the marginal product of capital is 60 and the marginal product of labor is 20. If the price of capital is $6 and the price of labor is $2.50, describe how the firm should adjust its mix of capital and labor? What will be the result?
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If a firm finds that the marginal product of capital is 60 and the marginal product of labor is 20, it will recognize that each dollar spent on capital resources will produce more than a dollar spent on labor resources. With the price of capital at $6, the marginal benefit of capital is 60 divided by $6, or 10.
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