A firm produces output with capital and labor. Suppose currently the marginal product of labor is 20 and the marginal product of capital is 2. Each unity of labor costs $8 and each unity of capital costs $1. Is the firm minimizing the cost of production? Explain.
Let MPK be the marginal product of capital, MPL be the marginal product of labor, r be the proce of capital, w be the cost of labor, and MRTS be the marginal rate of technical substitution.
The firm is:
A. Not minimizing the cost of production because MRTS>MPK/MPL
B. Not minimizing the cost of production because MPK/r
C. Minimizing the cost of production because MRTS = MPK/MPL
D. Minimizing the cost of production because MPK/r = MPL/w
E. Minimizing the cost of production because MPK/r