Homework Answers
If the firm is a profit maximizer, then following condition must satisfy
MPL/MPK=PL/PK
40/200=50/300
0.2=0.166
Since MPL/ MPK is greater than PL/PK, therefore firm should use more labor and less capital, so that MPL decrease and MPK increase. Hence MPL/MPK will decrease and it will be equal to the price ratio of labor and capital.
Hence option fifth is the correct answer.
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