A firm uses two inputs, labor and capital. The price of capital is $5 per unit; the price of labor is $7 per unit; and the marginal product of capital is $15.
a. Is the firm minimizing cost if the marginal product of labor is 20? Why or why not?
b. If the firm is not minimizing cost, should it use more or less labor relative to capital? Why?
c. If the marginal product of labor is 23, is the firm minimizing cost? Why or why not?
d. If the marginal product of labor is 21, is the firm minimizing cost? Why or why not?