You are an efficiency expert hired by a firm in the clothing industry that uses machines (K) and workers (L) as inputs. The firm has estimated that the marginal product of labor is MPL = 120 - 4 L, while the marginal product of capital is MPK = 50 - 5 K. The firm is currently using 25 units of L and 7 units of K. If w = $20, r = $15 then:
1. the firm is minimizing the cost of producing the given quantity of output.
2. the firm should use less L and more K to minimize the cost of producing the given quantity of output.
3. the firm should use less K and more L to minimize the cost of producing the given quantity of output
4. the firm is profit maximizing but not cost minimizing