A producer is hiring 20 units of labor and 6 units of capital (bundle A ). The p

Question

A producer is hiring 20 units of labor and 6 units of capital (bundle A). The price of labor is $10, the price of capital is $2, and at A, the marginal products of labor and capital are both equal to 20. The producer: 1) is using the optimal combination of capital and labor. 2) should use more labor and less capital. 3) should use more capital and less labor. 4) cannot determine without more information. A producer is hiring 20 units of labor and 6 units of capital (bundle A). The price of labor is $10, the price of capital is $2, and at A, the marginal products of labor and capital are both equal to 20. The producer: 1) is using the optimal combination of capital and labor. 2) should use more labor and less capital. 3) should use more capital and less labor. 4) cannot determine without more information. 1) is using the optimal combination of capital and labor. 2) should use more labor and less capital. 3) should use more capital and less labor. 4) cannot determine without more information. 3) should use more capital and less labor. 4) cannot determine without more information. 4) cannot determine without more information.

Explanation / Answer

1) is using optimal combination of capital and labor as marginal products are same.

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