Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Reduce labor and increase capital to save costs
B
Maintain the current combination as it's optimal
C
Increase both labor and capital equally to maximize output
D
Decrease both labor and capital to minimize expenses
Understanding the Answer
Let's break down why this is correct
Answer
When a firm finds that the marginal product of labor is equal to the marginal product of capital, it means that the additional output gained from one more unit of labor is the same as that from one more unit of capital. This situation indicates that the firm is using its resources efficiently, but it may also suggest that it could explore optimizing its resource allocation further. The firm should consider whether it can increase output or reduce costs by adjusting the mix of labor and capital. For example, if hiring more workers does not increase production more than investing in machines, it might be wise to invest in more machines instead. Ultimately, the firm should analyze its production process to ensure it's using its resources in the most cost-effective way.
Detailed Explanation
When the extra output from labor equals the extra output from capital, the firm is using its resources well. Other options are incorrect because Some might think reducing labor and using more capital will save money; Increasing both labor and capital might seem like a good idea to get more output.
Key Concepts
Cost Minimization
Marginal Product
Resource Allocation
Topic
Cost Minimization in Firms
Difficulty
easy level question
Cognitive Level
understand
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