Answer:
The firm should decrease the amount of capital used.
Explanation:
The wage rate is $12 per hour and capital is rented at $8 per hour.
The marginal product of labor is 60 units of output per hour and the marginal product of capital is 45 units of output per hour.
A manager hires labor and rents capital equipment in a very competitive market.
The ratio of marginal product of labor and wage rate
= [tex]\frac{60}{12}[/tex]
= 5
The ratio of marginal product of capital and rent
= [tex]\frac{45}{8}[/tex]
= 5.625
Since the ratio is greater for capital, it means that the manager should decrease the amount of capital used in the production process.
