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What should the firm do if the marginal product obtained from the last dollar spent on...

What should the firm do if the marginal product obtained from the last dollar spent on capital is larger than the marginal product derived from the last dollar spent on labor and why?

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Answer - Here the firm will now have to increase the number of labor by spending more on labor and it has to reduce the amount of capital it is using. This will lead to the lesser MPK and greater MPL . Thus the most efficient condition of MPK/PK = MPL / PL will be met here as the value of MPK will be reduced by employing lesser capital and value of MPL will rise by employing more labor. Hence the orginal condition of MPK/PK > MPL/PL will now be eliminated to find the equilibrium.

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