Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Hire more workers
B
Invest in more machinery
C
Reduce both labor and capital
D
Maintain the current levels of labor and capital
Understanding the Answer
Let's break down why this is correct
Answer
When a firm discovers that the marginal product of labor is greater than the marginal product of capital, it means that hiring more workers will produce more output compared to investing in machines or equipment. To minimize costs, the firm should focus on increasing its workforce rather than spending money on capital. For example, if a factory can produce 10 more units by hiring an additional worker but only 5 more units by buying a new machine, it makes sense to hire the worker. This strategy helps the firm get the most output for the least amount of money, ensuring efficiency in production and cost management. By reallocating resources toward labor, the firm can improve its overall productivity and profitability.
Detailed Explanation
When the extra output from workers is higher than from machines, hiring more workers helps produce more for less cost. Other options are incorrect because Some might think that buying more machines will help; People might believe cutting back on both workers and machines saves money.
Key Concepts
Cost Minimization
Marginal Product of Labor and Capital
Resource Allocation
Topic
Cost Minimization in Firms
Difficulty
easy level question
Cognitive Level
understand
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