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Question
A firm is currently using two inputs: labor and capital. It rents equipment for $1,000, which produces a value of the marginal product of $5,000. It hires workers at $10 per hour, who produce a value of the marginal product of $100. The wages of workers rise by 20 percent and the rental price of capital increases by 25 percent. The firm should hire ________ labor and ________ capital.
a. more; more
b. more; less
c. the same amount of; the same amount of
d. less; more
e. less; less
Answer
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