Afirm Is Producing 1,000 Units of Output with 40 Units

Short Answer

Afirm is producing 1,000 units of output with 40 units of labor and 30 units of capital. The marginal product of the last units of labor and capital are, respectively, MP_L = 60 and MP_K = 120. The prices of labor and capital are, respectively, w = 30 and r = 40.
a. At the combination of inputs the MRTS is __________________ (greater than, less than, equal to) the input price ratio, w/r.
b. The firm can increase ____________ by one unit while reducing ____________ by _________ unit(s), and keep output constant. This will reduce cost by $____________.
c. To minimize the cost of producing 1,000 units of output the firm will increase ____________ and decrease ____________ until _________ equals _________ or, in other words, _________ equals _________.