Question

1. Suppose there are two inputs (Labor; Capital). If the MRTS_L,K = 5 and the relative price ratio is 6, then

   		the firm should uses more labor and less capital
   		the firm should uses less labor and more capital
   		the firm should uses more labor and more capital
   		the firm should uses less labor and less capital

2 points   

QUESTION 35

1. The optimal level of labor in the short run is determined where:

   		marginal product of labor is equal to wage.
   		marginal product of labor is equal to the price of the product.
   		marginal revenue product of labor is equal to wage.
   		marginal rate of technical substitution equals to the ratio of the relative price  ratio. At the market clearing wage,

1. 		labor supplied = labor demanded
   		labor supplied > labor demanded
   		labor supplied < labor demanded
   		None of these is true

Answer 1

Q1) If the MRTS is smaller than the price ratio, this means that marginal product per dollar of labor = 5/6 is less than the marginal product per dollar for capital = 1

The equilibrium will be restored by decreasing labor (thus increasing marginal product of labor) and increasing capital (thus decreasing marginal product of capital).

Thus, the answer is (b) the firm should use less labor and more capital

All other options are incorrect as increasing labor or decreasing capital will not solve the problem.

Q35) The answer is (c) marginal revenue product of labor is equal to wage.

This si the optimal point at which the firm will stop hiring more labor.