Question
Consider the following scenario: the firm estimates that currently, its marginal product of labor is 40,...
Consider the following scenario: the firm estimates that currently, its marginal product of labor is 40, while the marginal product of capital is 150. The firm pays $40 in the rental price of capital and $10 in wage. Can this firm improve its profits by adjusting its labor and capital combination while holding the overall costs of production constant? And if yes, how? (Assume the standard assumptions about the production function, i.e. diminishing marginal products).
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