Consider a grain processing firm for which its labor and capital have a marginal revenue products of MRPL = $22/hour and MRPK = $35,000/machine, respectively.
a. Suppose that wages for the kind of labor hired by the grain processor are $14/hour and the price of capital is $52,000/machine. Explain whether the processor is maximizing profits or not. If the firm is not maximizing profits, explain what specific action should be taken to increase its profits.
b. Suppose instead that wages for the kind of labor hired by the grain processor are $22/hour and the price of capital is $28,000/machine. Explain whether the processor is maximizing profits or not. If the firm is not maximizing profits, explain what specific action should be taken to increase its profits.