Relative Cost of Labor and Capital: Able Corporation
At present Able Corporation has (in relative terms):
Marginal Product of Labor = 30
Total Cost of Labor = 15
Marginal Product of Capital = 60
Total Cost of Capital = 20.
1. Is Able Corporation currently operating at its lowest possible cost? _____________
2. Why, or why not? _____________________________________________________
To achieve the Equimarginal Criterion, Able Corporation would have to:
3. Raise / Lower (delete one) the Relative Total Cost of Labor to: ________________
4. Raise / Lower (delete one) the Relative Total Cost of Capital to: _______________
5. Once done the MPL/CL would be: __________ and the MPK/CK would be: _____________
At present Able Corporation has (in relative terms):
Marginal Product of Labor = 30
Total Cost of Labor = 15
Marginal Product of Capital = 60
Total Cost of ...
Solution Summary
This solution uses calculations of the relative costs of labor and capital to determine whether Able Corporation is operating at its lowest possible cost, and to give recommendations on how the firm can optimize its resources.
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