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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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    Solution Preview

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

    MPL/Cost of ...

    Solution Summary

    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.