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The producer-marginal products of labor and capital

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1. A producer is hiring 20 units of labor and 6 units of capital (bundle A). The price of labor is $10,the price of capital is $2, and at A, the marginal products of labor and capital are both equal to 20. (Please include explanation)

-Beginning at A, if the producer increases labor by one unit and decreases capital by 1 unit,then

a. Cost remains constant and output increases by 20 units.

b. Cost remains constant and output decreases by 20 units.

c. Output remains constant and cost increases by $8.

d. Output remains constant and cost decreases by $8.

e. Both cost and output remain constant.

2. The producer

a. Is using the optimal combination of capital and labor.

b. Should use more labor and less capital.

c Should use more capital and less labor.

d. Cannot determine without more information.

Reference no: EM131389223

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