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MPl and MPk

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A firm is producing 1,000 units of output with 40 units of labor and 30 units of capital. The marginal product of the last units of labor and capital are, respectively, MPL = 69 and MPK = 135. The prices of labor and capital are, respectively, w = 30 and r = 85. What should the firm do in order to minimize the cost of producing 1,000 units of output? Should the firm increase capital and decrease labor or the other way around? When should the firm stop replacing one input for the other? Explain.

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This solution helps explore the usage of MPl and MPk within the context of microeconomics.

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The firm gets to produce 69 units using the last unit of labor that costs $30, and gets to produce 135 units using capital that costs $85. The output produced ...

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