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. In equilibrium:
a. MPL = MPK
b. MPK will be more than 20
c. MPK will be less than 20
d. MPL will be 5 times MPK
e. None of the above.
In equilibrium, we have the following equation:
MPL/w = ...
The relative marginal products of labor and capital are embodied.