For a certain firm, the marginal revenue product for the last unit of labor is $60, and the marginal revenue product for the last unit of capital is $100. Which of the following combinations of factor prices would be necessary for the firm to maximize profits?
Price of Labor Price of Capital
a) $2 $5
b) $3 $20
c) $10 $10
d) $2 $25
e) $60 $100

Question

30-11-2022
Business

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For a certain firm, the marginal revenue product for the last unit of labor is $60, and the marginal revenue product for the last unit of capital is $100. Which of the following combinations of factor prices would be necessary for the firm to maximize profits?
Price of Labor Price of Capital
a) $2 $5
b) $3 $20
c) $10 $10
d) $2 $25
e) $60 $100

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Qwcircle Qwcircle · Answer 1 · 2022-12-02T21:11:19+01:00

Option E is the correct answer. A combination of $60 and $100 will be used to maximize profits.

In the question, it is stated that the marginal revenue product of a firm for the last unit of labor is $60. Also, the marginal revenue product for the last unit of Capital is $100. Then a combination of the price of labor as $60 and the price of capital as $100 would be necessary prices to maximize profits.

Marginal Revenue can be described as the increase in revenue that results from the sale of one additional unit of output to the sales.

Hence, the correct answer is Option E.

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