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Assume labor and machines are used in the production of an output.   The marginal product of...

Assume labor and machines are used in the production of an output.   The marginal product of the last worker hired was 175 units a day and the marginal product of the last machine employed was 850 units a day. The wage to hire a worker for a day is $100 while the cost to employ the machine for a day was $400. Assuming perfect competition what would you recommend the firm do to become more efficient?

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reduce labor and increase machines up to MP per dollar is equal.

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A firm maximizes profit at hiring where marginal product per dollar is equal from both inputs.

MP per dollar =MP/price of the input

MP per dollar of labor =175/100=1.75

MP per dollar of machine =850/400=2.125

the firm should reduce the labor input and increase the machines as the MP per dollar of a machine is higher than the labor.

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