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A firm is making a long-run planning decision.

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A firm is making a long-run planning decision. It wants to decide on the optimal (best) size of plant and labor force. It is considering building a medium-sized plant and hiring 100 workers. Engineering estimates suggest that at those levels, the marginal product of capital will be 100 and the marginal product of labor will be 75. If the wage rate is $5 and the rental rate on capital is $10, is the firm making the right decision? Support your answer.

 

Paper#32087 | Written in 18-Jul-2015

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