Question

. A competitive firm has the production technology ?(ℓ, ?) = ℓ 0.2? 0.4 , where...

. A competitive firm has the production technology ?(ℓ, ?) = ℓ 0.2? 0.4 , where ℓ is labour and ? is capital. The firm obtains labour and capital from competitive markets with wage rate ? and capital rent rate ?, respectively. (i) Calculate the marginal productivity of labour and capital for this firm. At which combination of inputs labour is more productive?

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Answer #1

Given

Marginal productivity of labor (MPL) is given as

Marginal productivity of capital (MPK) is given as

Average product of labor (APL) is given as

Average product of capital (APK) is given as

We are required to find input combination where labor is more productive. i.e.

APL>APK

k>l

labor is more productive if k>l

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