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Suppose a firm uses labor and capital to produce output. The last unit of labor hired has a marginal product of 12 units of output, and the last unit of capital employed has a marginal product of 20 units. Use the optimal combination of inputs rule to calculate the price of capital if the price of labor is $6 per unit. The price of capital is

Respuesta :

Answer:

$10

Explanation:

The marginal rate of technical substitution (MRTS) is an economic theory that illustrates the rate at which one factor must decrease so that the same level of productivity can be maintained when another factor is increased.

DATA

Marginal Product Labor (MPL)= 12

Marginal Product Capital (MPk) = 20

Price of labor = w = 6

Price of capital = r

Solution

Marginal rate of technical substitution = MPL/MPk

Marginal rate of technical substitution = 12/20

Marginal rate of technical substitution = 3/5

At optimal choice MRTS = PL/Pk  

MRTS = w/r

3/5 = 6/r

3r = 30

r = 30/3

r = 10

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