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Marginal Product

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You have been hired to replace the manager of a firm that uses only two inputs, capital

and labor, to produce output. The firm can hire as much labor as it wants at a wage

of $5 per hour and can rent as much capital as it wants at a price of $50 per hour. After

you look at the company books, you learn that the company has been using capital and

labor in amounts that imply a marginal product of labor of 50 and a marginal

product of capital of 100. Use the cost minimizing input rule to explain what action you should take.

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The solution goes into a fair amount of detail pertaining to the question being asked. The explanation is very good and yet concise and to the point. It is also very easy to follow along. Overall, a very good answer to the question being asked.

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MPL=50; Cost of labor=$5
MPC=100; Cost of Capital = $50

MPL/Cost of ...

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