1. A producer is hiring 20 units of labor and 6 units of capital (bundle A). The price of labor is $10,the price of capital is $2, and at A, the marginal products of labor and capital are both equal to 20. (Please include explanation)
-Beginning at A, if the producer increases labor by one unit and decreases capital by 1 unit,then
a. Cost remains constant and output increases by 20 units.
b. Cost remains constant and output decreases by 20 units.
c. Output remains constant and cost increases by $8.
d. Output remains constant and cost decreases by $8.
e. Both cost and output remain constant.
2. The producer
a. Is using the optimal combination of capital and labor.
b. Should use more labor and less capital.
c Should use more capital and less labor.
d. Cannot determine without more information.