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A firm uses capital and labor in its production process. The marginal product for the last unit of labor is 5, the marginal product for the last unit of capital is 10, and the wage is $10. At what cost of hiring each unit of capital would the firm be minimizing the cost of the current output

Sagot :

chilljain33

The output cost for the firm will be minimum when each unit is hired at approximately $20.

What is output cost?

Cost incurred for production of an individual unit while manufacturing such unit is referred to as the output cost. When the costs are minimum, the situation of output costs of such firm are as follows:

[tex]\rm\dfrac{Marginal\ Labor\ Cost}{Marginal\ Capital\ Cost} = \dfrac{Wages}{Rent\ of\ Capital}[/tex]

The rent of capital is also the output cost for an individual unit. Putting the values in the above formula, we get the output cost or the rent of capital as $20.

Hence, the output cost for the conditions given above will be computed as $20.

Learn more about output cost here:

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