1. A firm uses two variable inputs, labor, L, and raw materials, M, with typically shaped isoquants. It pays $20 per hour for L and $5 per unit for M. At the current mix of L and M, the marginal products of L and M are:
MPL = 20
MPM = 4
Is the firm minimizing costs? If not, what steps should it take to lower costs and still produce the same level of output?
2. A firm uses two variable inputs, labor, L, and raw materials, M, with typically shaped isoquants. It pays $20 per hour for L and $5 per unit for M. At the current mix of L and M, the marginal products of L and M are:
MPL = 20
MPM = 4
Is the firm minimizing costs? If not, what steps should it take to lower costs and still produce the same level of output?