Multiple Choice
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) more; more
B) more; less
C) the same amount; the same amount
D) less; more
E) less; less
Correct Answer:
Verified
Correct Answer:
Verified
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