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Rental price of capital increases

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A firm is currently using two inputs: labor and capital. It rents equipment for $1,000, which produces a value of the marginal product of $5,000. It hires workers at $10 an hour who produce a value of the marginal product of $100. The wages of workers rise by 20% and the rental price of capital increases by 25%. The firm should hire __________ labor and __________ capital.

a. less; more
b. the same amount; the same amount
c. more; less
d. more; more
e. less; less

Reference no: EM131051148

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