Question

2 A firm arch ases CA d.ec i Competitive mrkets at es of 4, rspecdvely Wa And corrent in pnt mix, the fm' th Argchal dact ot hArg hal th:s trm Spdal redact m.ni n.2 hg the 1 2 nd 1 s 24 of bor 18 0 plein how hsd the fm ght to de Khew Costs yu iret, explain

Answer 1

At the point of cost minimisation, the. Ratio MPK/r must be equal to MPL/w.

MPK/r. = 12/6= 2.

MPL/w = 18/4= 4.5.

Because MPL/w >MPK/r, this imply that employing more of labour and less of capital will minimize cost. This is because the Marginal product of labour for each additional labour or the additional penny spent on labour produce more as compared with capital.

Thus the firm ought to increasingly substitute the capital and employ more labour to minimize cost.