A firm uses two variable inputs, labor (L) and raw materials (M), in producing its output. At its current level of output:
CL = $10/unit MPL = 25
CM = $2/unit MPL = 4
a) determine whether the firm is operating efficiently, given that its objective is to minimize the cost of producing the given level of output.
b) determine what changes (if any) in the relative proportions of labor and raw materials need to be made to operate efficiently.
Cost of labor is $10/unit and that of raw materials is $2/unit. Marginal product of labor is 25, and that of raw materials is 4.
a. The optimum bundle is obtained when the marginal cost of the last unit produced by either inputs is the same. In this ...
Marginal Product of Labor is clarified in this solution.