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Suppose a firm uses only two inputs, labor (L) and capital (K).

Suppose a firm uses only two inputs, labor (L) and capital (K). In the short run, the amount of capital is fixed. If the price of labor is $4, and the marginal cost of production is $8, then the marginal product of labor is 

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  • None of the other answers are correct.

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Answer #1

The correct answer is: b. 2

Explanation:

If the amount of capital is fixed in the short run then it implies labor is the only variable factor. Marginal Cost (MC) corresponds to change in total variable cost as one more unit of variable factor (labor) is employed. If price of labor = $2, then marginal cost of labor can be $8 only only if marginal product of labor is 2 since then marginal cost = $4 x 2 labor units = $8.

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