A firm is currently producing their profit maximizing quantity of 600 units of output using 150 hours of labor and 50 hours of capital. The marginal product of labor is 10 units of output per hour and the marginal product of capital is 30 units of output per hour.
a. If the wage rate for labor is $5 per hour and the rental rate for capital is $10 per hour what is the firm’s total cost given their current allocation of capital and labor? Be sure to incorporate this information into your graph in part b.
b. Determine whether the firm is profit maximizing given their allocation of capital and labor. Make any necessary recommendations to the firm if their allocation of capital and labor should be altered. You must include a well labeled diagram to support your conclusion.